Macroeconomic 2105 Final Exam UGA, UGA Macro CH 9 Problems and Applications (Book), Econ 2105 Chs 9-12, Macroeconomic 2105 Final Study Guide
P12. The table shows the aggregate demand and short-run aggregate supply schedules of Shell Island in which potential GDP is $600 billion. The economy is at full-employment. 1. An unexpected increase in exports increases aggregate demand by $50 billion. What happens to the price level and real GDP? Has Shell Island experienced inflation or deflation and what type of output gap does it now have? The price level _____ and real GDP _____ billion. Shell island has experienced _____ . 2. The price of oil falls unexpectedly and aggregate supply increases by $50 billion. What type of output gap appears? If the central bank responds to close the output gap, does Shell Island experience inflation or deflation? _____ gap appears and the central bank closes the output gap, aggregate demand _____ and a _____ is created. 3. The government of Shell Island announces an increase in spending of $50 billion a year and the central bank will increase the quantity of money to pay for the spending. Does the economy go into a boom? Will there be inflation? The economy _____ into a boom, real GDP _____ billion, and _____ arises.
rises to 130; increases to $625; a one-time change in the price level and has an inflationary gap An inflationary; decreases; cost-push deflation does not go; remains at $600; inflation
P9. 1. What happened to the yuan-dollar exchange rate in recent days? The yuan-dollar exchange rate has decreased in recent days. 2. What might have changed the demand for yuan? A fall in the yuan interest rate differential has decreased the demand for yuan. 3. What might have changed the supply of yuan? Market intervention by the People's Bank of China has increased the supply of yuan.
see term side
T92. Suppose a country has a crawling peg exchange rate policy against the U.S. dollar and the equilibrium exchange rate in units of foreign currency per U.S. dollar is above the target rate. To keep the exchange rate pegged at its target level, the country's central bank must ______ U.S. dollars and ______ its foreign currency reserves.
sell; decrease
P9. The Fed "counters disorderly conditions in exchange markets" by doing all of the following except ______.
selling foreign reserves, which raises the U.S. exchange rate when the supply of dollars dramatically decreases
P9. The quantity of U.S. dollars demanded in the foreign exchange market depends on many factors, the main ones being ______.
the exchange rate, world demand for U.S. exports, interest rates in the United States and other countries, and the expected future exchange rate
hw6. Economic growth is _______. Growth rates are calculated in a similar manner for all variables. Real GDP growth rate = [(Real GDP in ______ yearminus−Real GDP in ______ year) divided by ÷Real GDP in ______ year ] times ×100.
the expansion of production possibilities current; previous; previous
12. Along the short-run Phillips curve, ______.
the expected inflation rate and the natural unemployment rate are constant
monetary policy
the fed conducts the nation's monetary policy by changing interest rates and adjusting the quantity of money
PT5. All of the following statements are included in new growth theory except ______.
the forces of competition destroy incentives to make new discoveries.
T91. When there is a surplus of dollars in the foreign exchange market, ______.
the forces of supply and demand pull the foreign exchange market into equilibrium
T92. When there is a shortage of dollars in the foreign exchange market, ______.
the forces of supply and demand pull the foreign exchange market into equilibrium
T91. The demand for U.S. dollars changes when there is a change in any of the following except ______.
the foreign exchange rate
T91. The supply of U.S. dollars changes when there is a change in any of the following except ______.
the foreign exchange rate
mt3. The supply of U.S. dollars changes when there is a change in any of the following except ______.
the foreign exchange rate
9. The U.S. interest rate differential rises if ______, and the larger the U.S. interest rate differential, the ______ is the demand for U.S. dollars in the foreign exchange market.
the foreign interest rate falls; greater
mt3. The marginal propensity to consume is ______. The marginal propensity to save is _______. The marginal propensity to consume is equal to ______, and the marginal propensity to save is equal to ______.
the fraction of a change in disposable income that is spent on consumption the fraction of a change in disposable income that is saved ΔC ÷ΔYD; ΔS ÷ΔYD
marginal propensity to consume
the fraction of a change in disposable income that's spent on consumption. change in consumption expenditure / change in disposable income
marginal propensity to import
the fraction of an increase in real GDP thats spent on imports. change in imports / change in real GDP expecting that all else stays the same
10. In the long-run, the level of output is:
the full-employment level of output
financial capital
the funds that firms use to buy physical capital and that households use to buy a home or to invest in human capital
benefit
the gain or pleasure that something brings and is determined by preferences
tax wedge
the gap between the before- tax and after - tax wage rates and the returns to other factors of production
imports
the goods and services that we buy from people in other countries
P121. The impulse in RBC theory is _______.
the growth rate of productivity that results from technological change
opportunity cost
the highest valued alternative that we must give up to get something
PT5. The fundamental precondition for labor productivity growth is _______.
the incentive system created by firms, markets, property rights, and money
profit
the income earned by entrepreneurship
interest
the income that capital earns
wages
the income that labor earns
PT7. When the price of an asset rises, ______.
the interest rate falls
human capital
the knowledge and skill that people obtain from education, on the job training and work experience
hw8. One of the Fed's main policy tools is ______.
the last resort loan, which means that if a bank is short of reserves, it can borrow from the Fed
PQ13. Generational accounting is an accounting system that measures _____.
the lifetime tax burden and benefits of each generation
rent seeking
the lobbying for special treatment by the government to create economic profit or to divert consumer surplus or producer surplus away from others. pursuit of wealth by capturing economic rent
P121. If the natural unemployment rate increases and the expected inflation rate remains constant, then ______.
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward.
mt1. In the figure, if 4 million computers are produced per year then the ________ should be produced to achieve the allocatively efficient use of resources
the marginal cost of a computer exceeds the marginal benefit of a computer, so fewer computers
mt3 An economy has a zero marginal tax rate. When real GDP increases, the change in consumption expenditure equals _______. When real GDP increases, the change in imports equals _______.
the marginal propensity to consume times ×the increase in real GDP the marginal propensity to import times the increase in real GDP
foreign exchange market
the market in which the currency of one country is exchanged for the currency of another
mt1. Gross domestic product is ______. A bakery uses flour to produce bread. When calculating GDP, we include ______, because when we add the value of the flour to the value of the loaf of bread to calculate GDP, the result is ______.
the market value of all the final goods and services produced within a country in a given time period only the value of the bread sold in a store; double counting
mt2. The Rule of 70 states that the number of years it takes for the level of any variable to ______ is approximately ______. If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ percent a year.
double; 70 divided by the annual percentage growth rate of the variable 3.5
P10. A new Classical view is that business cycle fluctuations are the _____ responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of _____.
efficient; technological change
hw3. Producers of electric guitars expect the population to increase and the number of firms producing and selling electric guitars to increase. You predict that the price of an electric guitar will ______ and the quantity of electric guitars bought will ______.
either rise, fall, or remain the same; increase
P10. Long-run macroeconomic equilibrium occurs when real GDP _____ potential GDP - equivalently, when the economy is on its _____ curve.
equals; LAS
hw4. A typical business cycle can be described by the sequence ______.
expansion, peak, recession, trough
P9. If all (or most) prices have increased in the United States and not increased in Japan, then people will generally expect that the foreign exchange value of the dollar will ______. The demand for dollars ______.
fall; decreases and the supply of dollars increases
hw2.In an hour, JimJim can catch 4 pounds of pickerel or pick 8 pounds of strawberries. In an hour, Sam can catch 4 pounds of pickerel or pick 20 pounds of strawberries. The opportunity cost of catching a pound of pickerel is ______ for Jim than for Sam, and the opportunity cost of picking a pound of strawberries is ______ for Jim than for Sam. So ______ has a comparative advantage in producing ______.
lower; higher Jim; Pickerel
hw3. An increase in the demand for sports cars together with an increase in the supply of sports cars ______ create a surplus or a shortage of sports cars at the original price. The price of sports cars ______.
might; might fall, rise, or not change
mt2. A stock is a certificate of _____ and claim to the _____ that a firm makes.
ownership; profits
P12. The new Keynesian cycle theory emphasizes the fact that today's money wage rates were negotiated at many past dates, which means that _____ rational expectations of the _____ price level influence the money wage rate and the position of the SAS curve.
past; current
mt2. A central bank is a banks bank and a _____ authority that regulates a nation's depository institutions and conducts _____ policy, which means that it adjusts the _____ and influences _____.
public; monetary; quantity of money in circulation; interest rates;
P10. A Keynesian macroeconomist believes that left alone, the economy would _____ operate at full employment and that to achieve and maintain full employment, active help from fiscal policy and monetary policy is required. A modern version of the Keynesian view, known as the new Keynesian view, holds not only that the money wage rate is _____ but also that prices of goods and services are _____.
rarely; sticky; sticky
PQ13. A budget deficit that needs government action to remove it is a ______ deficit. A ______ deficit will disappear when the economy moves back to full employment.
structural; cyclical
hw3. Coal and oil are ______. A skateboard and an iPod are ______. A cellphone and a phone call are ______. A text message and an email are ______. Pasta and pizza are ______. A video game and a laptop are ______. Pizza and sausage are ______. Wheat and rye are ______.
substitutes; complements complements; substitutes substitutes; complements complements; substitutes
P112. An increase in investment shifts the AE curve _______ and the AD curve _______.
upward; rightward
net worth
the market value of what a financial institution has lent minus the market value of what it has borrowed lent - borrowed
hw2. Veronica has two bowls of soupbowls of soup for lunch. The marginal benefit that Veronica receives from the second bowl of soup is _______.
the maximum amount that she is willing to pay for the second bowl of soup
required reserve ratio
the minimum percentage of deposits that depository institutions are required to hold as reserves
real wage rate
the money (nominal) wage rate / price level quantity of goods and services that an hour of labor earns
DSM8. If real GDP increases:
the money demand curve shifts to the right.
P12. All of the following events except an increase in ______ might cause a demand-pull inflation. Starting at point A, the initial effect of a demand-pull inflation is a move to point ______. As a demand-pull inflation spiral proceeds, it follows the path ______.
the money wage rate C; E, H, I
P101. Potential GDP increases for all of the following reasons except ______.
the money wage rate decreases
T122. According to mainstream business cycle theory, _______.
the money wage rate is sticky and consequently if aggregate demand grows faster than potential GDP, an inflationary gap emerges
12. A cost-push rise in the price level can arise from an increase in _______.
the money wage rate or money prices of raw materials
P121. A cost-push rise in the price level can arise from an increase in _______.
the money wage rate or money prices of raw materials
P101. As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the price of other resources, and potential GDP remain constant.
10. As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the prices of other resources, and potential GDP remain constant
PT5. When cyclical unemployment increases and other things remain the same, ______.
the natural unemployment rate does not change
T.122 When aggregate demand unexpectedly increases, ______.
the natural unemployment rate does not change
mt2. When cyclical unemployment increases and other things remain the same, ______.
the natural unemployment rate does not change
mt3. When aggregate demand unexpectedly increases, ______.
the natural unemployment rate does not change
real interest rate
the nominal interest rate adjusted to remove the effects of inflation on the buying power of money. nominal interest rate - inflation
currency
the notes and coins held by individuals and businesses
goods and services
the objects that people value and produce to satisfy human wants
marginal cost
the opportunity cost of producing one more unit of a good or service. it's the best alternative forgone. increase in total cost/ increase in output
hw2. The table shows some of Brazil's production possibilities for ethanol and food crops. Marginal cost of a good is _______. When the quantity of food produced is 2.5 tons a day, the marginal cost of producing a ton of food is ____ barrels of ethanol.
the opportunity cost of producing one more unit of it 14
DSM3. All of the following scenarios depict the characteristics of substitutes except:
the price of bacon increases and the demand for eggs decreases.
DSM3. All of the following scenarios depict the characteristics of complements except:
the price of coffee increases and the demand for cream increases.
T92. The quantity of U.S. dollars supplied in the foreign exchange market depends on all of the following except ______.
the price of gold
quantity theory of money
the proposition that in the long run, an increase in the quantity of money brings and equal % increase in the price level
investment
the purchase of new plant, equipment, and buildings and additions to inventories
Open market operation (OMO)
the purchase or sale of government securities - U.S. Treasury bills and bonds - by the Fed Reserve System in the loanable funds market
hw8. An open market operation is ______.
the purchase or sale of securities by the Federal Reserve System in the loanable funds market
government expenditure multiplier
the quantitative effect of a change in government expenditure on real GDP. calculated as the change in real GDP that results from the change in government expenditure divided by the change in government expenditure
tax multiplier
the quantitative effect of a change in taxes on real GDP. change in real GDP that results from a change in taxes / the change in taxes
hw3. Suppose the price of a bag of chips is 60 cents. To return to equilibrium, ______.
the quantity demanded decreases and the quantity supplied increases
P9. At the equilibrium exchange rate _______.
the quantity of dollars demanded equals the quantity of dollars supplied
P10. Inflation results when ______.
the quantity of money increases rapidly
P102. High inflation accompanies economic growth when ______.
the quantity of money increases rapidly
12. A stagflation can turn into a cost-push inflation process when _______.
the quantity of money persistently increases
P121. A stagflation can turn into a cost-push inflation process when _______.
the quantity of money persistently increases
P102. When firms are unable to meet the demand for their output, _____. Prices _____.
the quantity of real GDP demanded is greater than the quantity of real GDP supplied; rise
10. Everything else remaining the same, an increase in aggregate demand increases ______.
the quantity of real GDP supplied
P101. When unwanted inventories pile up, _____. Prices _____.
the quantity of real GDP supplied is greater than the quantity of real GDP demanded; fall
mt3. With a rise in the money wage rate, ______.
the quantity that firms are willing to supply at each price level decreases
P101. With a rise in the money wage rate, ______.
the quantity that firms are willing to supply at every level decreases
relative price
the ratio of the price of one good or service to the price of another good or service opportunity cost
10. As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant
P101. As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant
aggregate production function
the relationship between real GDP and the quantity of labor when all other influences on production remain the same
saving function
the relationship between saving and disposable income, other things remaining the same
supply of loanable funds
the relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same
aggregate demand
the relationship between the quantity of real GDP demanded and the price level
long-run aggregate supply
the relationship between the quantity of real GDP supplied and the price level when the money wage rate changes in step with the price level to maintain full employment
short run aggregate supply
the relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources and potential GDP remain constant
demand for money
the relationship between the quantity of real money demanded and the nominal interest rate when all other influences on the amount of money that people wish to hold remain the same
real exchange rate
the relative price of US produced goods and services to foreign produced goods and services
PT5. All of the following statements are correct except _______.
the return of full employment in an expansion phase of the business cycle is economic growth
default risk
the risk that a borrower might not repay a loan
P9. The current account is the record of receipts from _____ other countries, minus _____ other countries, plus the net amount of _____ received from and paid to other countries.
the sale of goods and services to other countries; payments for goods and services bought from; interest and transfers
10. According to the graph, an increase in the quantity of money is best described by:
the shift in the AD curve
T122. If the expected inflation rate increases and the natural rate of unemployment remains constant, then _______.
the short-run Phillips curve shifts upward and the long-run Phillips curve does not change
property rights
the social arrangements that govern the ownership, use, and disposal of anything that people value. Enforceable in the courts
PQ13. An automatic fiscal policy is a fiscal policy action that is triggered by _____. A discretionary fiscal policy is a fiscal policy action that is initiated by _____.
the state of the economy; an act of Congress
Monetary base
the sum of currency and reserves of the depository institution deposits
National Saving
the sum of private saving (saving by households and businesses) and government saving private saving + government saving
labor force
the sum of the people who are employed and who are unemployed
T92. The quantity of U.S. dollars demanded in the foreign exchange market depends on all of the following except ______.
the supply of US dollars in the foreign exchange market
hw6. The two broad sources of potential GDP growth are growth of ______ and growth of ______.
the supply of labor; labor productivity
crowding out effect
the tendency for a government budget deficit to raise the real interest rate and decrease investment
mt2. Gross investment is ______. Net investment is ______.
the total amount spent on new capital; the change in the value of capital
working age population
the total number of people aged 16+ and who are not in jail, hospital or some other form of institutional care
consumption expenditure
the total payment for consumer goods and services
DSM4. The point where economic activity bottoms out in a full business cycle is known as:
the trough
12. Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate
P121. Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate
mt3. Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate
Natural unemployment rate
the unemployment rate when the economy is at full employment - natural unemployment as a percentage of the labor force
frictional unemployment
the unemployment that arises from normal labor turnover - from people entering and leaving the labor force and from the ongoing creation and destruction of jobs
structural unemployment
the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs
10. New classical theorists believe that:
the uneven pace of technological change is the most significant cause of business cycle fluctuations.
fiscal stimulus
the use of fiscal policy to increase production and employment
fiscal policy
the use of the federal budget, by setting and changing tax rates, making transfer payments and purchasing goods and services, to achieve macroeconomic objectives such as full employment, sustained economic growth and price level stability
wealth
the value of all the things that people own - the market value of their assets - at a point in time
net exports
the value of exports of goods and services minus the value of imports of goods and services value of exports of goods and services - value of imports of goods and services
DSM4. Real GDP is __________.
the value of final goods and services produced in a given year when valued at the prices of a reference base year
potential GDP
the value of production when all the economy's labor, capital, land and entrepreneurial ability are fully employed; quantity of real GDP at full employment
hw4. Nominal GDP is ______. Real GDP is ______.
the value of the final goods and services produced in a given year valued at the prices of that year; the value of final goods and services produced in a given year when valued at the prices of a reference base year
Labor
the work time and work effort that people devote to producing goods and services
T92. If most prices increase in Japan and other countries but remain constant in the United States, ______.
then for purchasing power parity to hold, the demand for U.S. dollars increases and the supply of U.S. dollars decreases
mt3 If most prices increase in Japan and other countries but remain constant in the United States, ______.
then for purchasing power parity to hold, the demand for U.S. dollars increases and the supply of U.S. dollars decreases
T91. If most prices have decreased in the United States and not decreased in Japan and other countries, ______.
then for purchasing power parity to hold, the value of the U.S. dollar in the foreign exchange market will riserise
classical growth theory
theory of economic growth based on the view that the growth of real GDP per person is temporary and that when it rises above subsistence level, a population explosion eventually brings it back to subsistence level
DSM8. When the interest rate decreases, __________.
there is movement down a stationary money demand curve
PT5. An economy is at full employment when ______.
there is no cyclical unemployment
DSM6. According to theory regarding labor productivity growth, workers will be more productive if __________.
they have more human capital
mt1. After you graduate, you have decided to accept a position working at the Bureau of Labor Statistics for $45,000.00 a year. The two other offers you received were working for Wal−Mart for $38,000 and working for Ernst and Young consulting for $42,000. Of these two offers, you would have preferred the job at Ernst and Young. What is the opportunity cost of accepting the position at the Bureau of Labor Statistics?
the $42,000 you would have been paid working for Ernst and Young
hw5. The price index with the greatest bias is ______ because ______.
the CPI; it isn't based on current period actual expenditure weights
hw8. When the Fed buys securities from a bank, ______.
the bank's reserves increase but its deposits do not change
P9. The foreign exchange market is the market in which _____ of one country is exchanged for _____ of another.
the currency; the currency
hw7. G-20 Leaders Look to Shake off Lingering Economic Troubles-The "capital" referred to in the news clip is ______. The financial institutions that the G-20 might require to hold more capital are ______. The requirement to hold more capital can make financial institutions safer because by using more of its own funds and less borrowed funds, a financial institution ______.
the institutions' own funds; banks and insurance companies decreases its risk of insolvency
12. If the natural unemployment rate increases and the expected inflation rate remains constant, then ______.
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward
12. If the expected inflation rate increases and the natural rate of unemployment remains constant, then _______.
the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift
hw7. Physical capital is ______. Financial capital is ______. Examples of physical capital are ______. Examples of financial capital are ______.
the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services; the funds that firms use to buy physical capital ovens used by Pizza Hut and lawn mowers used by Larry's Mowing; bonds issued by Wal-Mart and stocks issued by Boeing
DSM5. If the consumer price index was 73 in 1979 and 225 in 2011, then prices in 2011 were on average:
three times as high as 1979
DSM13. Many economists believe that increases in government debt are not necessarily problematic if the funds are used:
to build infrastructure.
T92. A change in the expected future exchange rate changes the demand for U.S. dollars ______, and a change in the world demand for U.S. exports changes the demand for U.S. dollars ______.
today; today
T92. A change in the expected future exchange rate changes the supply of U.S. dollars ______, and a change in U.S. demand for imports changes the supply of U.S. dollars ______.
today; today
capital
tools, equipment, buildings and other constructions that businesses use to produce goods and services
gross investment
total amount spent on purchases of new capital and on replacing depreciated capital
government debt
total amount that the government has borrowed. sum of past budget deficits - sum of past budget surpluses
DSM13The largest and fastest growing category of federal expenditures is __________.
transfer payments
P9. What does the Treasury Department say about China's currency? The Treasury Department says that China's currency is ________. What type of exchange rate policy does China practice? China practices a _____ exchange rate policy. How might it be determined whether the yuan is "significantly undervalued"? It might be determined whether the yuan is "significantly undervalued" from _____ and _____.
undervalued crawling peg PPP Prices; change in foreign exchange reserves
P9. The yuan was ______ relative to purchasing power parity and the Swiss franc was ______ relative to purchasing power parity. The price of a Big Mac in different countries _______ provide a valid test of purchasing power parity because _______.
undervalued; overvalued does not; purchasing power parity is determined by the price level not by individual prices
DSM5. The natural rate of unemployment is the __________.
unemployment rate an economy will experience when real GDP equals potential GDP
12. A movement ______ along the short-run Phillips curve occurs when there is an ______ increase in aggregate demand.
up; unexpected
P121. A movement ______ along the short-run Phillips curve occurs when there is an ______ increase in aggregate demand.
up; unexpected
PT5. The CPI basket consists of items that _____ households buy. The CPI places more weight on _______ than on _______.
urban transportation; medical care
mt1. Allocative efficiency is a situation in which the quantities of goods and services produced are those that people _____ - it is not possible to produce more of a good or service _____ some of another good that people _____.
value most highly; without giving up; value more highly
real GDP
value of final goods and services produced in a given year when valued at the prices of a reference base year
hw2. Harry enjoys tennis but wants a high grade in his economics course. Figure 1 shows Harry's PPF. Figure 2 shows Harry's marginal benefit curve for tennis. If Harry uses his time to achieve allocative efficiency, he plays 7 hours of tennis a week and his economics grade is 65 percent. Harry would be ______ off getting a higher grade in economics because ______ Harry's PPF ______and his MB curve ______. Harry's efficient time allocation ____.
worse; his marginal benefit from tennis would exceed his marginal cost does not change; shifts rightward increases
P131. A country has been in existence for only two years. In the first year, receipts were $1.0 million and outlays were $1.5 million. In the second year, receipts were $1.5 million and outlays were $2.0 million. At the end of the second year, the government had issued debt worth ______.
$1 million
P9. If saving is $850 billion, investment is $500 billion, government expenditure on goods and services is $700 billion, net exports is $50 billion, and net taxes is $800 billion, then calculate government sector balance.
$100 billion
P132. The figure shows the labor market when an income tax is imposed. The tax wedge is ______.
$15 an hour
PQ13. If tax revenues are $3,650 billion and outlays are $3,400 billion, calculate the budget surplus. If tax revenues are $4,000 billion and outlays are $4,800 billion, calculate the budget deficit.
$250 billion; $800 billion
P9. If saving is $850 billion, investment is $500 billion, government expenditure on goods and services is $600 billion, and net exports is $100 billion, then calculate private sector balance.
$350 billion
P12. The U.S. short-run Phillips curve ______ when the expected inflation rate rises. The U.S. short-run Phillips curve ______ when the natural unemployment rate increases. The U.S. long-run Phillips curve ______ when the expected inflation rate rises. The U.S. long-run Phillips curve ______ when the natural unemployment rate increases.
shifts upward; shifts rightward does not shift; shifts rightward
10. An unexpected change in the price of oil would cause a shift of the _______ curve.
short-run aggregate supply
10. The aggregate demand and aggregate supply model explains:
short-run fluctuations in real GDP and the price level
An economy is at potential GDP when it experiences an increase in costs. The economy experiences _______.
stagflation
10. Keynes maintained that the economy could remain long-term at levels of output below the full-employment level of output due to:
sticky wages.
DSM5. Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called __________.
structural unemployment
PT5. Suppose that the number of jobs in the fishing industry decreases but the number of jobs in the travel industry increases.Suppose that the number of jobs in the fishing industry decreases but the number of jobs in the travel industry increases. Initially, ______.
structural unemployment increases
hw4. Out of a Job and Out of Luck at 54- Older workers are more prone to experience ______ unemployment. During a recession, the unemployment rate of older workers ______. Choose the statement that is incorrect. Older unemployed workers might become marginally attached workers or discouraged workers during a recession because _______.
structural; increases given their long employment history, they are eligible for longer periods of unemployment benefits
microeconomics
study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments
Macroeconomics
study of the performance of the national economy and the global economy
hw3. If, as the price of a hot dog increases, the quantity of hamburgers that people buy increases, then hot dogs and hamburgers are _______.
substitutes
mt1. People buy more of good 1 when the price of good 2 rises. These goods are
substitutes
DSM13. The government debt is best measured as the:
sum of past budget deficits minus the sum of past budget surpluses.
aggregate planned expenditure
sum of planned consumption expenditure, planned investment, planned government expenditure on goods and services, and planned exports minus planned imports
induced expenditure
sum of the components of aggregate planned expenditure that vary with real GDP. consumption expenditure - imports = induced expenditure
autonomous expenditure
sum of those components of aggregate planned expenditure that are not influenced by real GDP. The sum of investment, government expenditure, exports and the autonomous parts of consumption expenditure and imports
hw3. Suppose that there is a substantial fall in the price of apples. Apples are (obviously) the major ingredient in apple juice. As a result of this event, the market for apple juice changes in this way: ________________.
supply increases and price falls
mt2. A government budget surplus occurs, which increases the _________ loanable funds. The real interest rate ______, household saving ______,
supply of falls; decreases and investment increases
hw7. A government budget surplus occurs, which increases the ______ loanable funds. The real interest rate ______, household saving ______,
supply of falls; decreases and investment increases
PT7. A government budget surplus occurs, which increases the ________ loanable funds. The real interest rate ______, household saving ______,
supply of falls; decreases and investment increases
PQ13. The relationship between the _____ is called the Laffer Curve.
tax rate and the amount of tax revenue collected
DSM13. Supply-side economics emphasizes the role that __________ play in the supply of output in the economy.
taxes
net taxes
taxes paid to governments minus cash transfers received from governments
PQ13. The cyclical surplus or deficit is the budget balance that arises because _____ and _____ are _____ their full-employment levels.
tax revenues; outlays; not at
hw3. A supply curve _______.
tells us the lowest price at which someone is willing to sell
cycle
tendency for a variable to alternate between upward and downward movements
trend
tendency for a variable to move in one general direction
core inflation rate
the Fed's operational guide is the rate of increase in the core PCE deflator, which is the PCE deflator excluding food and fuel prices
Beige Book
the Fed's publication that summarizes all the data that is gathered and that describes the current state of the economy
DSM4. If Americans still worked sixty hour weeks, as they did in 1890, __________.
the GDP would be much higher than it is but the well-being of the typical person would not necessarily be higher
10. When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
P102. When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
P102. When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
10. When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
9. Read the news clip, then answer the following question. Mr. Reddy is investing in the U.S. real estate market because ______.
the U.S. dollar depreciated and the price of U.S. investment properties to foreign investors like Mr. Reddy decreased
mt3. Indian Entrepreneur Seeks Opportunities- Read the news clip, then answer the following question. Mr. Reddy is investing in the U.S. real estate market because ______.
the U.S. dollar depreciated and the price of U.S. investment properties to foreign investors like Mr. Reddy decreased
P9. If a U.K. bank deposit earns 4 percent a year and a U.S. bank deposit earns 5 percent a year, then people expect that ______.
the U.S. dollar will depreciate by 1 percent a year
U.S. official reserves
the U.S. government's holdings of foreign currency
U.S. interest rate differential
the U.S. interest rate - the foreign interest rate
T92. The U.S. interest rate differential falls when ______.
the US interest rate falls and the foreign interest rate rises
hw4. GDP Expands 11.4 percent, Fastest in 13 Years- According to the expenditure approach for calculating China's GDP, "each one percent drop in the U.S. economy will shave 1.3 percent off China's growth" because as the U.S. economy shrinks, ______. China's ______ and China's real GDP decreases.
the United States imports less from China; exports decrease
mt1. GDP Expands 11.4 percent, Fastest in 13 Years- Read the news clip, then answer the following questions. According to the expenditure approach for calculating China's GDP, "each one percent drop in the U.S. economy will shave 1.3 percent off China's growth" because as the U.S. economy shrinks, ______. China's ______ and China's real GDP decreases.
the United States imports less from China; exports decrease
cyclical surplus or deficit
the actual surplus or deficit minus the structural surplus or deficit actual - structural
net investment
the amount by which the value of capital increases - gross investment minus depreciation
quantity demanded
the amount of a good or service that consumers plan to buy during a given time period at a particular price
quantity supplied
the amount of a good or service that producers plan to sell during a given time period at a particular price
DSM7. In the long run, the amount of investment a firm can make is dependent on:
the amount of household savings
saving
the amount of income that is not paid in taxes or spent on consumption goods and services
hw5. The price level is ______.
the average level of prices, and the value of money
marginal benefit
the benefit that a person receives from consuming one more unit of a good or service. it's measured as the maximum amount that a person is willing to pay for one more unit of the good or service
production possibilites frontier
the boundary between those combinations of goods and services that can be produced and those combinations that cannot
structural surplus or deficit
the budget balance that would occur if the economy were at full employment and real GDP were equal to potential GDP
DSM4. The cycle of short-term ups and downs in the economy is called:
the business cycle
DSM8. The Federal Reserve System is __________.
the central bank of the United States
autonomous tax multiplier
the change in equilibrium expenditure and real GDP that results from a change in autonomous taxes divided by the change in autonomous taxes
11. To calculate the multiplier, we divide ______ by ______.
the change in equilibrium expenditure; the change in autonomous expenditure
P112. The marginal propensity to import is equal to _______.
the change in imports divided by the change in real GDP, other things remaining the same
slope
the change in the value of the variable measured on the y-axis divided by the change in the value of the variable measured on the x-axis
self interest
the choices that you think are the best ones available for you
stagflation
the combination of inflation and recession
9. The part of the balance of payments that records a country's exports and imports of goods and services is __________.
the current account
hw3. Events in the market for a particular good are such that the market (equilibrium) price and market (equilibrium) quantity of the good move opposite direction (i.e., price falls as quantity rises, and\or price rises as quantity falls). It must therefore be true that _________.
the decisive event in the marketplace is a shifting supply curve
P9. In the short run, the nominal exchange rate is determined by ______. And in the short run ______.
the demand for U.S. dollars and the supply of U.S. dollars in the foreign exchange market; a change in the nominal exchange rate brings an equivalent change in the real exchange rate
technological change
the development of new goods and of better ways of producing goods and services
Generational imbalance
the division of the fiscal imbalance between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits
T122. When inflation is correctly anticipated, _______.
the economy remains at full employment
P10. Aggregate demand will increase if ______.
the effect of the tax rebates and the change in the foreign exchange rate outweigh the effect of the housing, credit, and financial crises
supply
the entire relationship between the price of a good and the quantity supplied of it when all other influences on producers' planned sales remain the same. described by a supply schedule and illustrated by a supply curve
demand
the entire relationship between the price of the good and the quantity demanded of it when all other influences on buyers plans remain the same. illustrated by demand curve and described by a demand schedule
DSM3. Given linear demand curves, if demand and supply both increase but demand increases by a greater amount than supply, then:
the equilibrium price and quantity both increase.
DSM3. Given linear demand curves, if demand and supply increase by identical amounts, then:
the equilibrium price stays the same and the equilibrium quantity rises.
DSM3. Given linear demand curves, if demand increases and supply decreases, then __________.
the equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous
P9. The quantity of U.S. dollars supplied in the foreign exchange market depends on many factors, the main ones being ______.
the exchange rate, U.S. demand for imports, interest rates in the United States and other countries, and the expected future exchange rate
mt3. The quantity of U.S. dollars supplied in the foreign exchange market depends on many factors, the main ones being ______.
the exchange rate, U.S. demand for imports, interest rates in the United States and other countries, and the expected future exchange rate
9. The quantity of U.S. dollars demanded in the foreign exchange market depends on many factors, the main ones being ______.
the exchange rate, world demand for U.S. exports, interest rates in the United States and other countries, and the expected future exchange rate
T92. Item Billions of dollars Government expenditures 400 Net taxes 150 Investment 200 Saving 150 The table gives some items from the national income and product accounts. Calculate the government sector balance, the private sector balance, and net exports.
-250 -50 -300
DSM6. During the past decade, a nation's average annual rate of population growth was 4 percent, and its average annual real GDP growth rate was 1 percent. Thus, the average annual rate of growth in per capita real GDP was __________.
-3.0 percent
P10. Read the news clip, then answer the following question. Based on this news clip, Paul Krugman most likely follows the ______ school of thought and Ben Bernanke most likely follows the ______ school of thought.
. Keynesian or new Keynesian; Keynesian or new Keynesian
mt3. Deflation in Japan arose because _______.
. Japan's money stock did not grow fast enough to accommodate the growth of potential GDP and a trend rise in velocity.
Dairies make low-fat milk from full-cream milk. In the process of making low-fat milk, the dairies produce cream, which is made into ice cream. A rise in the wage rate of dairy workers ______ the supply of low-fat milk. A rise in the price of cream ______ the supply of low-fat milk. A rise in the price of low-fat milk ______ the supply of low-fat milk.
. decreases; increases does not change
hw8. Money and the Monetary Base in August 2017 Amount August 2017 (billions of dollars) M1- 3,564.2 M2-13,649.7 Monetary base-3,115.6 What are the values of the M1 money multiplier and the M2 money multiplier in August 2017? The M1 money multiplier is ____ The M2 money multiplier is ____
1.1 4.4
P9. The U.S. dollar exchange rate increased from $0.89 Canadian in June 2009 to $0.96 Canadian in June 2010, and it decreased from 83.8 euro centseuro cents in January 2009 to 76.9 euro cents in January 2010. In January 2009, the value of 100 Euro cents was In January 2010 the value of 100 Euro cents was The Euro ____ the US dollar January 2009 to January 2010
1.19 1.30 Appreciated
mt1. The price of a bag of corn chips is $3, and the price of a bottle of soda is $1. What is the relative price of a bottle of soda?
1/3 bag of corn chips
hw8. In Canada, the currency drain ratio is 11 percent of deposits and the reserve ratio is 0.03 percent of deposits. The Canadian money multiplier is ____. In Australia, the quantity of M1 is $150 billion, the currency drain ratio is 33 percent of deposits and the reserve ratio is 8 percent. The monetary base in Australia is $_____ million
10.06 46.24
T91. Item Billions of dimes Imports of goods and services 200 Exports of goods and services 300 Foreign investment in Nickleodeon 310 Nickleodeon's investment abroad 450 DecreaseDecrease in official holdings of foreign currency 40 The table shows the only international transactions that the citizens of Nickleodeon, whose currency is the dime, conducted in 2010. What is Nickleodeon's current account balance, capital and financial account balance, and official settlements account balance?
100 -140 40
T111. An economy has a consumption function of C = 15 + 0.7Y, investment of 8, government expenditure of 12, exports of 20, and an import function of M = 0.2Y. What is equilibrium real GDP?
110
mt3. An economy has a consumption function of C = 15 + 0.7Y, investment of 8, government expenditure of 12, exports of 20, and an import function of M = 0.2Y. What is equilibrium real GDP?
110
mt2. Hardworking Americans Should Not Be Living in Poverty- The CPI increased by_____ percent over these three years.
6.6
PT5. Labor force 155 Unemployment 10 Not in labor force 80 The table gives information reported by the Bureau of Labor Statistics for October, 2008. What is the employment-to-population ratio? The employment-to-population ratio is ___.
61.7 percent
PT5. Item Millions Employment 143 Unemployment 12 Not in the labor force 89 The table gives information reported by the Bureau of Labor Statistics for September, 2012. What is the labor force participation rate? The labor force participation rate is ____ percent.
63.5
PT5. Labor Market Data Not in labor force 70.0 million Labor force 142.6 million Employed 136.9 million The table gives information about the U.S. labor market in 2000. What is the labor force participation rate? The labor force participation rate is ____ percent.
67.1
10. Which of these factors will shift the short-run aggregate supply to the left?
A decrease in the size of the labor force
DSM3. When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?
A market
P102. Choose the statement that is incorrect.
Along the LAS curve the money wage rate is constant and the real wage rate rise as the profit rises
P102. Choose the statement that is incorrect.
Along the SAS curve, the real wage rate and the price level change by the same percentage.
hw2. Two countries, Alpha and Beta, have identical production possibilities frontiers. If Alpha produces at point A and Beta produces at point B, then _______.
Alpha consumes less than Beta today, but it will grow faster than Beta
DSM13 Which of these fiscal policy actions will increase real GDP in the short run?
An increase in government expenditures
DSM8. Which of these will shift the money demand curve to the right?
An increase in real GDP
DSM3. Which of the following is consistent with the law of supply?
An increase in the market price of MP3 players causes an increase in the production of MP3 players.
mt1. The "law of demand" predicts that, other things being equal,
An increase in the price of pizza decreases the quantity of pizza demanded
DSM13 Which of these is an example of an automatic fiscal policy?
An unemployment benefit program
12. Choose the statement about the long-run Phillips curve that is incorrect.
An unexpected increase in aggregate demand shifts the long-run Phillips curve rightward.
T122. Choose the statement about the long-run Phillips curve that is incorrect.
An unexpected increase in aggregate demand shifts the long-run Phillips curve rightward.
PT5. Choose the statement that is incorrect.
An unexpected inflation or deflation has no effect on the economy.
P12. The table shows the aggregate demand and short-run aggregate supply schedules of Shell Island in which potential GDP is $600 billion. The economy is at full-employment. The price of oil falls unexpectedly and aggregate supply increases by $50 billion. What type of output gap appears? If the central bank responds to close the output gap, does Shell Island experience inflation or deflation? _____ gap appears and the central bank closes the output gap, aggregate demand _____ and a _____ is created.
An inflationary; decreases; cost-push deflation
DSM4. How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP?
By adding the value in dollar terms of all the final goods and services produced domestically.
10. How can government policies shift the aggregate demand curve to the right?
By increasing government purchases
PQ13. Choose the correct statements. a. The purpose of the American Recovery and Reinvestment Act of 2009 was to lower interest rates and increase b. The increase in total unemployment benefits triggered by the massive rise in the unemployment rate through 2009 is an example of discretionary fiscal policy. c. A fiscal policy action initiated by an act of Congress is called discretionary fiscal policy. d. Fiscal stimulus is the use of fiscal policy to increase production and employment.
C and D
P12. The figure shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the economy of Tomorrowland. The economy is currently at point A. A cost-push rise in the price level will initially move the economy to point ______ and to point ______.
C when the money prices of raw materials rise; D when aggregate demand increases
E. Capital and Financial Account
Capital and Financial Account= Foreign Investment in the US - US Investment Abroad + Statistical Discrepancy
mt2. Choose the statement that is incorrect.
Changes in relative prices lead consumers to change the items they buy, and the CPI reflects this substitution.
hw8. What is the largest component of M1? What is the largest component of M2?
Checkable deposits Savings deposits
PT6.Choose the statement that is incorrect.
Classical growth theory tells us that technological change induces a level of saving and investment that makes capital per hour of labor grow indefinitely.
mt2. Choose the statement that is incorrect.
Coins, which are issued by the treasury are an asset to the Fed and a component of the monetary base.
PT7. Choose the correct statement.
Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
hw7. Choose the correct statement.
Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
DSM13 Which of these is the main reason for the long-run funding problems of Social Security?
Demographic changes.
hw8. Choose the statement that is incorrect.
Deposits are not money because you cannot settle a debt with a deposit.
PT8. Choose the correct statement.
Deposits are money, checks are not money, and credit cards are not money.
hw8. Choose the correct statement.
Deposits are money, checks are not money, and credit cards are not money.
9. The U.S. dollar exchange rate decreased from$1.33 Canadian in October, 2016 to 1.25 Canadian in October, 2017, and it increased from 103.91 Japanese yen in October, 2016 to 112.50 yen in October, 2017. Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the Japanese yen?
Depreciated; Appreciated
mt1. Marginal benefit curves generally slope
Downward, but not because of increasing opportunity cost
mt1. If it costs Hobie $900 to produce 5 lamps and $1,200 to produce 6 lamps, then the difference of $300 is the marginal cost of producing the 5th lamp.
False
PQ13. True or False Congress can pass budget laws only once a year. For the United States budget, the fiscal year runs from January 1 to December 31. The President has veto power to eliminate specific items in a budget bill and approve others. The President proposes a budget to Congress each February.
False False False True
13. Categorize the following statements as either true or false. Congress can pass budget laws only once a year. The President has veto power to eliminate specific items in a budget bill and approve others. Congress attempted to grant the President a line dash item veto but the Supreme declared this unconstitutional. For the United States budget comma the fiscal year runs from January 1 to December 31.
False False True False
PQ13. ______—the use of the federal budget to achieve macroeconomic objectives such as full employment, sustained economic growth, and price level stabilitylong dash—is made by ______ on an annual timeline.
Fiscal policy is; the President and Congress
DSM5. When the economy is at full employment, which types of unemployment remain?
Frictional and structural
mt2 U.S. Workers World's Most Productive- Read the news clip, then answer the following questions. The article defines productivity as ______. Real GDP per person is ______.
GDP divided by the number of people employed; real GDP divided by the population
hw6. U.S. Workers World's Most Productive-The article defines productivity as ______. Real GDP per person is ______.
GDP divided by the number of people employed; real GDP divided by the population
DSM2. In the circular flow model, which of the following refers to markets where goods such as computers or services such as medical treatment are offered?
Goods markets
E. Government Sector Balance
Gov Sector Balance= taxes - gov expenditure
E. Exchange Rate
Exchange Rate= Real Exchange Rate x Foreign Price Level/ US Price Level
DSM8. Which of these predictions can be made using the growth rates associated with the equation of exchange?
If the money supply grows at a faster rate than real GDP, there will be inflation.
DSM7. Which of these statements about interest rates and inflation is true?
If there is zero inflation, the nominal interest rate is equal to the real interest rate.
P11. The multiplier increases when the marginal propensity to consume ____. The multiplier increases when the marginal propensity to import ______ or the income tax rate ______.
Increases decreases; decreases
10. An increase in expected future income ---- aggregate demand. An increase in the expected future inflation rate ----- aggregate demand. An increase in expected future profits ----- aggregate demand.
Increases for all blanks
P132. Expansionary fiscal policy when the economy is below full employment ______ aggregate demand and real GDP, and the price level ______.
Increases; rises
DSM13 Which of these would be a fiscal policy the government might want to use if the economy is operating at too high a level of output?
Increasing income tax rates
DSM5. Government policies can help to reduce the levels of frictional and structural unemployment, but they can also help to increase them. Which of these policies can cause an increase in the levels of frictional and structural unemployment?
Increasing the minimum wage
P9. Choose the correct statement about interest rate parity
Interest rate parity means equal rates of return.
PQ13. An economy is experiencing a recessionary gap. The government can ______.
increase expenditure or cut taxes to increase aggregate demand
DSM13 When the economy is in a recession, the government can:
increase government purchases or decrease taxes in order to increase aggregate demand.
11. The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to ______.
increase real GDP by a given amount
DSM7. A federal government budget deficit will __________.
increase the demand for loanable funds and increase the equilibrium interest rate
9. If consumers in the United States decrease their demand for imports, the result will be to __________.
increase the exchange rate of the U.S. dollar
T122. Unanticipated deflation does all of the following except _______.
increase the velocity of circulation
DSM13 Budget deficits automatically __________ during recessions and __________ during expansions.
increase, decrease
P9. Explain the effect of the Fed's announcement on the demand for and supply of U.S. dollars. The demand for U.S. dollars would _____ and the supply of U.S. dollars would _____ on June 2.
increase; decrease
10. Starting from a position of long-run equilibrium, a world expansion ______, and an increase in expected future profits ______.
increases real GDP and raises the price level; increases real GDP and raises the price level
lender of last resort
The Fed is the lender of last resort - depository institutions that are short of reservers can BORROW from the Fed
mt2. Suppose the United States goes from a free-trade policy to a no-trade policy with other countries. Which of the following is a result of this new policy?
The U.S. no longer consumes outside its production possibilities frontier
P10. Which of the following statements illustrate fiscal policy?
The US government has proposed a hike in the corporate tax rate.
PQ13. Which of the following statements illustrates fiscal policy?
The US government has proposed a hike in the corporate tax rate.
PT5. Choose the statement that is incorrect.
The United States and Great Britain were the only countries who suffered the Great Depression.
mt2. Choose the statement that is incorrect.
The nominal interest rate is the real interest rate adjusted to remove the effects of inflation on the buying power of money
PT7. Choose the statement that is incorrect.
The nominal interest rate is the real interest rate adjusted to remove the effects of inflation on the buying power of money.
DSM7. The real interest rate is:
The nominal interest rate minus the inflation rate.
mt1. Consider the following statements about factors that influence the standard of living, and choose the statement that is incorrect.
The omission of household production from GDP means that GDP overestimates total production
mt1. Which of the following statements by Tom demonstrates that his buying plans obey the law of demand?
The only thing that's changed is the price of textbooks: they've become more expensive and now I'm not buying as many.
change in the quantity supplied
a change in SELLERS' plans that occurs when the price of a good changes but all other influences on sellers' plans remain unchanged. Illustrated by movement ALONG the supply curve
P12. The quantity theory of money tells us that _______.
a change in the money growth rate brings an equal change in the inflation rate
hw3. All of the following will change the demand for DVD players except _______. An increase in the price of a DVD player _______.
a change in the price of a DVD player decreases the quantity of DVD players demanded and results in a movement up along the demand curve for a DVD player
PT5. Choose the statement about an increase in the population that is incorrect.
The production function shifts upward.
hw6. Choose the statement about an increase in the population that is incorrect.
The production function shifts upward.
PT7. A government budget deficit occurs, which ______. The real interest rate ______. Private saving ______ and investment ______
increases the demand for loanable funds; rises increases, decreases
hw7. A government budget deficit occurs, which ______. The real interest rate ______. Private saving _____ and investment _____ .
increases the demand for loanable funds; rises increases; decreases
PQ13. Fiscal stimulus that increases an existing government budget deficit ______ loanable funds and ______ investment.
increases the demand for; decreases
10. Aggregate demand decreases if the exchange rate ______ or foreign income ______.
increases; decreases
P9. An increase in U.S. demand for imports ______ the supply of U.S. dollars. A rise in the U.S. interest rate differential ______ the supply of U.S. dollars.
increases; decreases
P9. An increase in world demand for U.S. exports ______ the demand for U.S. dollars. A fall in the U.S. interest rate differential ______ the demand for U.S. dollars.
increases; decreases
PT5. An increase in the population ______ potential GDP and ______ potential GDP per hour of labor.
increases; decreases
DSM4. Which of the following is included in the economist's definition of investment?
The purchase of new machines, factories, or houses
rational choice
a choice that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice
hw8. U.S. Bank Earnings up 21% as Loan Losses Decline, FDIC Says- A bank's attempts to pursue profit can sometimes lead to bank failure because _______. FDIC insurance helps to minimize bank failures and bring more stability to the banking system because _______.
a combination of all of the above depositors know that money they have deposited with a bank will be repaid
tradeoff
a constraint that involves giving up one thing to get something else
debtor nation
a country that during its entire history has borrowed more from the rest of the world than its lent to the rest of the world countries that owe more
creditor nation
a country that during its entire history has invested more in the rest of the world than other countries have invested in it invested more
net borrower
a country that is borrowing more from the rest of the world than it's lending to it borrowing country
net lender
a country that's lending more to the rest of the world than it's borrowing from it lending country
balance of payments accounts
a country's record of international trading, borrowing and lending
long run Phillips curve
a curve that shows the relationship between inflation and unemployment when the actual inflation rate equals expected inflation rate actual = expected
marginal benefit curve
a curve that shows the relationship between the marginal benefit of a good and the quantity of that good consumed
demand curve
a curve that shows the relationship between the quantity demanded of a good and its price when all other influences on consumers' planned purchases remain the same
supply curve
a curve that shows the relationship between the quantity supplied of a good and its price when all other influences on producers' planned sales remain the same
Short run Phillips curve
a curve that shows the tradeoff between inflation and unemployment, when the expected inflation rate the natural unemployment rate are held constant
P9. A fixed exchange rate is an exchange rate that is determined by ______ and is achieved by central bank intervention in the foreign exchange market to block _____.
a decision of the government or the central bank; the unregulated forces of demand and supply
10. A higher exchange rate will result in:
a decrease in net exports and a decrease in aggregate demand
PT6. An increase in labor productivity results in all of the following except ______.
a decrease in potential GDP per hour labor because of diminishing returns.
hw3. We know that there have been shifts of both the demand curve for and the supply curve of a good. We also know that one end result of the changes in this market was that the equilibrium price of the good fell. Given this information, which combination of supply and demand changes could NOT have possibly occurred?
a decrease in supply and an increase in demand
mt1. Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect?
a decrease in the price of orange juice processing
P102. Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
mt2. A mortgage is _______.
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments (repayments and interest)
Below full employment equilibrium
a macro equilibrium in which potential GDP exceeds real GDP
full-employment equilibrium
a macroeconomic equilibrium in which real GDP = potential GDP
Above full employment equilibrium
a macroeconomic equilibrium where real GDP exceeds potential GDP
classical
a macroeconomist who believes that the economy is self-regulating and always at full employment
Monetarist
a macroeconomist who believes that the economy is self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
new classical
a macroeconomist who holds the view that business cycle fluctuations are the efficient responses of a well-functioning market economy bombarded by shocks that arise from the uneven pace of technological change technology affects the business cycle, its normal to have these flucuations
New Keynesian
a macroeconomist who holds the view that not only is the money wage rate sticky but also that the prices of goods and services are sticky
discouraged worker
a marginally attached worker who has stopped looking for a job because of repeated failure to find one
competitive market
a market that has so many buyers and so many sellers, so no single buyer or seller can influence the price
M1
a measure of money that consists of currency and traveler's checks plus checking deposits owned by individuals and businesses
means of payment
a method for settling a debt
P111. You observe that unplanned inventories are increasing. You predict that there will be _______.
a recession
P101. Draw an aggregate demand curve in an economy with a below full-employment equilibrium. Label it AD. Draw a point at the below full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the output gap. The output gap in the graph is ______ because ______.
a recessionary gap; potential GDP exceeds real GDP
DSM13 The time between when an economic problem begins and policymakers determine there is a need for fiscal policy is known as:
a recognition lag.
capital and financial account
a record of foreign investment in a country minus its investment abroad
current account
a record of receipts from exports of goods and services, payments for imports of goods and services, net interest income paid abroad, and net transfers received from abroad
Official settlements account
a record of the change in official reserves, which are the government's holdings of foreign currency
linear relationship
a relationship between 2 variables that's illustrated by a straight line
direct relationship
a relationship between two variables that move in the same direction ---> --->
negative relationship
a relationship between variables that move in opposite directions
inverse relationship
a relationship between variables that move in opposite directions --> <--
import quota
a restriction that limits the maximum quantity of a good that may be imported in a given period
incentive
a reward that encourages an action or a penalty that discourages an action
hw3. The graph illustrates the market for tea. The market equilibrium is at point A. After one or more changes, the market equilibrium moves to point B (to the right of equilibrium). You predict that the market for tea was most likely influenced by _______.
a rise in household income and a rise in the number of plantations
12. Cost-push inflation might start with:
a rise in money wage rates
hw3. Which of the following --- by itself --- causes a decrease in demand for a certain good?
a rise in the price of some item that is a complement of the good
rule of 70
a rule that states that the number of years it takes for the level of any variable to double is approx 70 divided by the annual percentage growth rate of the variable 70 / yearly % growth rate of the variable
production efficiency
a situation in which goods and services are produced at the lowest possible cost
allocative efficiency
a situation in which goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit. we cannot produce more of any good without giving up some of another good that we value more highly
purchasing power parity
a situation in which the prices in two countries are equal when converted at the exchange rate
interest rate parity
a situation in which the rates of return on assets in different currencies are equal
full employment
a situation in which the unemployment rate equals the natural unemployment rate. No cyclical unemployment - all unemployment is frictional and structural
long run macroeconomic equilibrium
a situation that occurs when real GDP = potential GDP - the economy is on its long run aggregate supply curve
short run macroeconomic equilibrium
a situation that occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied - at the point of intersection of the AD curve and the SAS curve
DSM3. Other things remaining equal, the law of demand says that higher prices will lead to:
a smaller quantity demanded and lower prices to a larger quantity demanded.
P132.Fiscal policy attempts to achieve all of the following objectives except ______.
a stable money supply
DSM3. The condition that exists when quantity supplied exceeds quantity demanded at the current price is known as __________.
a surplus or excess supply
tariff
a tax that is imposed by the importing country when an imported good crosses its international boundary
DSM3. All of the following will decrease the supply of airline flights except:
a technological change that makes airplanes safer and more fuel-efficient.
new growth theory
a theory of economic growth based on the idea that real GDP per person grows because of the choices that people make in the pursuit of profit and that growth will persist indefinitely
neoclassical growth theory
a theory of economic growth that proposes that real GDP per person grows because technological change induces an amount of saving and investment that makes capital per hour of labor grow
real business cycle theory
a theory of the business cycle that regards random fluctuations in productivity as the main source of economic fluctuations
Monetarist cycle theory
a theory that fluctuates in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand
Keynesian cycle theory
a theory that fluctuations in investment driven by fluctuations in business confidence - summarized by the phrase "animal spirits" - are the main source of fluctuations in aggregate demand
mortgage backed security
a type of bond that entitle its holder to the income from a package of mortgages
monetary policy instrument
a variable that the Fed can directly control or at least very closely target
hw4. The use of purchasing power parity prices
accounts for differences in the prices of the same goods in different countries when measuring real GDP.
hw4. Potential GDP is
achieved when all factors of production are fully employed.
hw4. If Nike, an American corporation, produces sneakers in Thailand this would
add to Thailand's GDP but not to U.S. GDP.
mt1. To make total income equal to GDP we ______ indirect taxes less subsidies and ______ depreciation.
add; add
PQ13. A tax on consumption ______.
adds to the tax wedge in the labor market because it raises the prices paid for consumption goods and services and is equivalent to a cut in the real wage rate
DSM3. Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium:
after an adjustment period that varies.
12. The mainstream business cycle theories all assert that the main factor leading to business cycles is fluctuations in the growth of
aggregate demand
PQ13. The tax multiplier is the effect of a change in taxes on _____.
aggregate demand
P101. The business cycle occurs because ______.
aggregate demand and short-run aggregate supply fluctuate, but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP
P12. An inflation that starts because _____ is called demand-pull inflation.
aggregate demand increases
12. Deflation occurs when _______.
aggregate demand increases at a persistently slower rate than aggregate supply
P12. Deflation occurs when _______.
aggregate demand increases at a persistently slower rate than aggregate supply
disposable income
aggregate income minus taxes plus transfer payments aggregate income - taxes + transfer payments
loanable funds market
aggregate of all the individual markets in which households, firms, governments, banks, and other financial institutions borrow and lend
P112. Equilibrium expenditure is the level of aggregate expenditure that occurs when ______. Choose the correct statement
aggregate planned expenditure equals real GDP The level of aggregate expenditure that occurs the AE curve intersects the 45 degree line is equilibrium expenditure.
hw2. What kind of efficiency are we achieving when we are producing at a point of the PPF that we prefer above all other points:
allocative
mt1. Mrs. Lovejoy decides to invest in companies which she believes are producing its goods based on the preferences of consumers. Mrs. Lovejoy is investing in companies that are
allocatively efficient.
multiplier
amount by which a change in autonomous expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP
DSM2. Ms. Boulware is the best lawyer and the best secretary in town. She has:
an absolute advantage in both jobs
Generational accounting
an accounting system that measures the lifetime tax burden and benefits of each generation
mt1. What does the term "marginal" mean in economics?
an additional or extra
government sector balance
an amount equal to net taxes minus government expenditure on goods and services net taxes - govt expenditure on goods and services
private sector balance
an amount equal to saving minus investment saving - investment
P9. Mexican goods might become more expensive to U.S. consumers because ______.
an appreciation of the Mexican peso against the U.S. dollar means that the U.S. dollar depreciates against the Mexican peso
PT6. During the 100 years from 1914 to 2014, real GDP per person in the United States grew at ______.
an average of 2 percent a year
PT5. In the United States, the CPI basket consists of items that ______ . ______ has the greatest weight in the CPI basket.
an average urban household buys; Housing
hw5. In the United States, the CPI basket consists of items that ______ . ______ has the greatest weight in the CPI basket.
an average urban household buys; Housing
firm
an economic unit that hires factors of production and organizes those factors to produce and sell goods and services
crawling peg
an exchange rate that follows a path determined by a decision of the government or the central bank and is achieved in a similar way to a fixed exchange rate
flexible exchange rate
an exchange rate that's determined by demand and supply in the foreign exchange market with no direct intervention by the central bank
fixed exchange rate
an exchange rate where the value is determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market to block the unregulated forces of demand and supply
P112. You observe that unplanned inventories are decreasing. You predict that there will be _______.
an expansion
DSM2. Which of the following is critical to the success of the market system?
To allow individuals or firms to have exclusive use of their property
9. What events in the foreign exchange market could have brought this rise in the value of the U.S. dollar? 1. World demand for U.S. exports increases Upper YY 2. World demand for U.S. exports decreases Upper NN 3. U.S. import demand increases Upper NN 4. U.S. import demand decreases Upper YY 5. The U.S. interest rate differential rises Upper YY 6. The U.S. interest rate differential falls Upper NN 7. The expected future exchange rate rises Upper YY 8. The expected future exchange rate falls Upper NN
YY is Yes NN is No
P9. The United States is a debtor nation, and since 1980 it has piled up trade deficits that total $9 trillion. At its peak in 2006, the current account deficit was almost 6 percent of GDP. To pay for the $9 trillion of goods and services we've imported in excess of our exports, we have borrowed from the rest of the world. Foreigners have purchased large amounts of U.S. assets. A current account deficit means we must borrow more from abroad than we lend abroad or use our official reserves to cover the shortfall. The debtor nation status of the United States would be a concern if the borrowed funds were used to finance ______.
True Consumption
PQ13. Summers Calls for Infrastructure Spending-This infrastructure spending is fiscal stimulus. Such spending is _______ fiscal policy. Choose the statement that is incorrect.
True discretionary Government spending on roads, bridges, and airports decreases the government budget deficit.
DSM5. What is the impact of unanticipated inflation?
Unanticipated inflation creates arbitrary redistributions of income.
DSM8. Velocity of circulation is defined as __________.
V = (P x Y) / M
P121. Choose the correct statement about the U.S. short-run Phillips curve.
We can interpret US inflation and unemployment data in terms of a shifting short-run Phillips curve, which sometimes shifts upward and sometimes shifts downward.
DSM5. Which one of these groups is most hurt by unanticipated inflation?
Wealthy people who hold cash in their wall safes
mt1. Trade−offs force society to make choices when answering what three fundamental questions?
What goods and services to produce; how will these goods and services be produced; and who receives them?
P12. The economy starts out on the curves AD0 and SAS0. Some events then occur that generate an expected inflation. Which of the following events would not cause an expected inflation? Starting at point A, the initial effects of an expected inflation is a movement to point ______. As an expected inflation proceeds, it follows the path ______.
an expected increase in taxes E; I
P12. A demand-pull inflation begins with _______.
an increase in aggregate demand
mt3. A demand-pull inflation begins with _______.
an increase in aggregate demand
final good
an item that is bought by its final user during the specified time period
intermediate good
an item that's produced by one firm, bought by another firm, and used as a component of a final good or service
recessionary gap
an output gap in which potential GDP exceeds real GDP
inflationary gap
an output gap in which real GDP exceeds potential GDP
hw6. When labor productivity increases, there is _____ the production function and _____ in potential GDP.
an upward shift of; an increase
PT7. Over time, on average the demand for loanable funds ______, so the real interest rate ______.
and the supply of loanable funds increase at a similar pace; has no trend.
hw7. Over time, on average the demand for loanable funds ______, so the real interest rate ______.
and the supply of loanable funds increase at a similar pace; has no trend
growth rate
annual percentage change of a variable - the change in the level expressed as a percentage of the initial level
federal budget
annual statement of the outlays and receipts of the US government, together with laws and regulations that approve and support those outlays and receipts
market
any arrangement that enables buyers and sellers to get information and to do business with each other
money
any commodity or token thats generally acceptable as a means of payment
10. At arrow 2, the economy is in ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
an above; right
hw8. Suppose that Sara withdraws $1,000 from her savings account at the Lucky S&L, keeps $50 in cash, and deposits the balance in her checking account at the Bank of Illinois. The immediate change is ______ in M1 of $1,000 and ______ in M2.
an increase; no change
P9. Explain the effect of the two announcements on the U.S. dollardash-yen exchange rate: Would the U.S. dollar appreciate or depreciate? The two announcements on the U.S. dollar-yen exchange rate would _____ the U.S. dollar.
appreciate
9. The theory of purchasing power parity states that __________.
arbitrage equalizes the value of monies
mt2. Categorize the following items as either an asset of the Fed or a liability of the Fed. U.S. government securities Federal Reserve notes Loans to depository institutions Depository institution deposits The monetary base is equal to ______.
asset; liability; asset; liability the Fed's liabilities together with coins issued by the Treasury
P10. A Classical macroeconomist believes that the economy is self-regulating and always _____.
at full employment
PQ13. The structural surplus or deficit is the budget balance that would occur if the economy were _____.
at full employment
mt3. A Classical macroeconomist believes that the economy is self-regulating and always _____.
at full employment
P10. A monetarist is a macroeconomist who believes that the economy is self-regulating and that it will normally operate _____, provided that monetary policy is not erratic and that the pace of _____ is kept steady.
at full employment; money growth
PQ13. The economy is in a recession, the recessionary gap is large, and there is a budget deficit. The budget deficit is ______. Automatic fiscal policy is ______ the output gap. If a discretionary increase in government expenditure occurs, the structural deficit ______ or the structural surplus ______.
at least partly composed of a cyclical deficit; decreasing increases; decreases
mt1. Ted quits his $60,000−a−year job to be a stay−at−home dad. What is the opportunity cost of his decision?
at least $60,000
mt2. The discount rate is the interest rateThe discount rate is the interest rate ______. The Fed is the lender of last resort, which means _______.
at which the Fed stands ready to lend reserves to depository institutions if depository institutions are short of reserves, they can borrow from the Fed
hw2. The figure shows the production possibilities frontier for a firm that produces pet food. Point A is ______ and point B is ______. This PPF ______ illustrate scarcity because ______.
attainable; unattainable does; the firm cannot produce points outside the frontier and as the firm moves along the PPF, it cannot produce more dog biscuits without producing less cat food
DSM13 Taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called __________.
automatic fiscal policy
P131. A fall in real GDP that results in a decrease in personal income tax receipts is an example of ______.
automatic fiscal policy
P112. The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______. To calculate the multiplier, we divide ______ by ______.
autonomous expenditure; change in equilibrium expenditure and real GDP the change in equilibrium expenditure; change in autonomous expenditure
12. A rise in the price of oil creates _______.
a one-time cost-push rise in the price level
mt2. Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during _____ and decreases during _____.
a recession; an expansion
P101. In the graph, the vertical distance between the horizontal line and point 2 is _____ gap. At point 2, the intersection of the AD and SAS curves is to the _____ of the LAS curve. The vertical distance between the horizontal line and point 3 is _____ gap. At point 3, the intersection of the AD and SAS curves is to the _____ of the LAS curve.
a recessionary; left; an inflationary; right
P102. A business cycle can be described by the following sequence: ______ equilibrium, ______ equilibrium, ______ equilibrium.
below full-employment; full-employment; above full-employment
rational expectation
best forecast possible, a forecast that uses all the available information
DSM13. Every time the federal government runs a budget deficit, the government must:
borrow, which adds to the government debt.
P9. A debtor nation is a country that during its entire history has _____ the rest of the world than it has _____ the rest of the world.
borrowed more from; lent to
hw4. An U.S. firm buys a new industrial sewing machine from a company located in France. Which of the following is true? I. U.S. net exports decrease. II. U.S. investment increases.
both I and II
hw3. The price of food increased during the past year. The law of demand applies to food because when the price of food rises, there is ______. The substitution effect influences food purchases because when the price of a certain food rises, other things remaining the same, ______. Consumers ______. The income effect influences food purchases because when the price of a certain food rises, other things remaining the same, ______. Consumers ______.
both a substitution effect and an income effect its relative price rises; purchase more of a different food that is less expensive the price rises relative to income; cannot afford to buy all the things they previously bought, so they normally buy less of the food that has experienced the price rise
P12. Tight Money Won't Slay Food, Energy Inflation- Read the news clip, then answer the following questions. The news clip refers to ______ inflation when it discusses rising production costs. "Rising labor productivity" can neutralize the effect on the inflation rate of "higher input costs" because ______.
cost-push; it increases short-run aggregate supply and long-run aggregate supply with no slowdown in aggregate demand growth
P12. An inflation that is kicked off by an increase in _____ is called cost-push inflation.
costs
T92. Suppose the exchange rate is 90 yen per U.S. dollar and the United States wants to keep the exchange rate at a target rate of 90 yen per U.S. dollar. If the demand for U.S. dollars decreases, the Fed ______.
buys dollars to raise the exchange rate
DSM8. To increase the money supply, the Fed __________.
buys securities from the public
hw8. If the interest rate is 5 percent, people will ______.
buy bonds, bid up their price, and the interest rate will fall
DSM5. A sustained decrease in the average level of prices in the economy is __________.
called deflation
DSM13. Supply-side economists point to the Laffer curve as evidence that higher taxes:
can lead to lower overall government revenues.
mt1. A person has a comparative advantage in an activity whenever he or she
can perform the activity at a lower opportunity cost than can anyone else.
P10. Economic growth results when there are increases in ______.
capital accumulation
P9. The ______ account records ______ U.S. investment abroad.
capital and financial; foreign investment in the United States minus
DSM7. An increase in the real interest rate will:
cause a movement along the demand curve for loanable funds
Federal Reserve System (The Fed)
central bank of the US, a public authority whose main role is the regulation of banks and money
balanced budget multiplier
change in equilibrium expenditure and real GDP that results from equal changes in government expenditure and lump sum taxes divided by the change in government expenditure
P111. An increase in investment shifts the AE curve upward by an amount equal to the ______, and shifts the AD curve rightward by an amount equal to the ______.
change in investment; change in investment times the multiplier
P121. In real business cycle theory, all of the following events can be sources of fluctuation in productivity except _______.
changes in growth rate of money
PT5. Labor supply growth is influenced by all of the following except_______.
changes in labor productivity
12. According to real business cycle theory, a major source of fluctuations in economic activity is __________.
changes to technology
social interest
choices that are the best ones for society as a whole
10. A ______ macroeconomist believes that the economy is self-regulating and always at full employment. A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
classical; Keynesian
P101. A ______ macroeconomist believes that the economy is self-regulating and always at full employment. A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
classical; Keynesian
10. Stagflation is a:
combination of inflation and recession
mt3 The components of aggregate expenditure that are influenced by real GDP are ______.
consumption expenditure and imports
hw4. The expenditure approach to measuring GDP sums together ______, and the largest component is ______.
consumption expenditure, investment, government expenditure on goods and services, and net exports; consumption expenditure
mt1. The expenditure approach to measuring GDP sums together ______, and the largest component is ______.
consumption expenditure, investment, government expenditure on goods and services, and net exports; consumption expenditure
10. Changes in consumption spending play a large role in the business cycle because _______ accounts for approximately ______ percent of GDP.
consumption expenditure; 70
P12. Pakistan: Is it Cost-Push Inflation?- Read the news clip, then answer the following question. Pakistan is experiencing ______ inflation.
cost-push
PT8. Depository institutions provide four benefits, which are ______.
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk.
DSM7. A decline in investment spending as a result of an increase in government spending and borrowing is known as:
crowding out
DSM7. If increases in government budget deficits cause investment spending to fall it is known as __________.
crowding out
DSM13. The decline in private expenditures that results from an increase in government borrowing is known as:
crowding out.
9. In the balance of payment accounts, the sum of exports minus imports, net interest income, and net transfers is called the __________.
current account balance
9. If the sum of net exports, net interest income received from abroad, and net transfer payments from abroad yields a negative number, we say that a country's __________.
current account is in deficit
hw3. American to cut flights, charge for luggage- Read the news clip, then answer the following question. The news clip illustrates a change in the supply of flights when it reports that American Airlines is _______.
cutting the number of flights with no mention of a change in the airfare
mt2. An electrician who is laid off because the economy is in a recession experiences ______.
cyclical unemployment
DSM5. At full employment, __________.
cyclical unemployment is zero
DSM13 In 2008, spending on Social Security, Medicare and Medicaid was less than 10% of the GDP. By 2030 this amount is expected to be around 17% of GDP. One government option to solve this problem is to:
decrease benefits.
13. Economy Needs Treatment- A "credible business plan" for the government to adopt is a plan to ______.
decrease government expenditure
depreciation
decrease in the value of a firm's capital that results from wear and tear and obsolescence
10. In the short run, an unexpected decrease in oil prices will:
decrease the price level but increase real GDP
hw4. In August 2016, the U.S. unemployment rate was 4.9 percent. In August 2017, the unemployment rate was 4.4 percent. Assuming that the labor force remained constant between August 2016 and August 2017, then unemployment _______.
decreased
T92. The expectations about the exchange rate ______ the demand for U.S. dollars and ______ the supply of U.S. dollars.
decreased; increased
mt2. The tables describe an economy's labor market and its production function in 2014. In 2015, the population increases and labor hours supplied increase by 10 at each real wage rate. The economy's standard of living ______ in 2015 because ______.
decreased; real GDP per person is smaller in 2015 than in 2014
PT6. The gap between real GDP per person in the United States and Hong Kong has ______ since 1960. During this period, the growth rate of real GDP per person in the United States has been ______ than in Hong Kong.
decreased; slower
PQ13. When the government taxes the nominal interest rate minus the inflation rate instead of the nominal interest rate, the true tax rate _____
decreases
P10. The following events have occurred at times in the history of the United States. 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Event 1 ______. Event 2 ______. Event 3 ______.
decreases aggregate demand; decreases short-run aggregate supply decreases aggregate demand
P10. 1. A deep recession hits the world economy 2. The world oil price rises sharply. 3. U.S. businesses expect future profits to fall. Starting from a position of long-run equilibrium, a deep recession ______, and a decrease in expected future profits ______. Starting from a position of long-run equilibrium, a sharp increase in the world oil price ______.
decreases real GDP and lowers the price level; decreases real GDP and lowers the price level decreases real GPD and raises price level
PQ13. A tax on labor income ______. The equilibrium quantity of labor ______. At the new equilibrium quantity of labor, the before-tax wage rate ______ and the after-tax wage rate _____
decreases the supply of labor; decreases rises; falls
11. The multiplier increases when the marginal propensity to import ______ or the income tax rate ______.
decreases; decreases
P132. Tax revenues ______ during a recession. Needs-tested spending ______ during an expansion.
decreases; decreases
10. Aggregate demand decreases if expected future income, inflation, or profits ______. And aggregate demand decreasesdecreases if fiscal policy ______ government expenditure.
decreases; decrease;
P9. A fall in the expected future exchange rate ______ the demand for U.S. dollars. A decrease in the U.S. demand for imports _______ the demand for U.S. dollars.
decreases; does not change
P9. A rise in the expected future exchange rate ______ the supply of U.S. dollars. An increase in the world demand for U.S. exports ______ the supply of U.S. dollars.
decreases; does not change
10. Aggregate demand decreases if monetary policy ______ the quantity of money and ______ interest rates.
decreases; increases
PQ13. A decrease in the tax on capital income ______ the real interest rate and ______ investment and economic growth.
decreases; increases
mt3. Yesterday, the current exchange rate was $1.05 Canadian per U.S. dollar and traders expected the exchange rate to remain unchanged for the next month. Today, with new information, traders now expect the exchange rate next month to fall to $1 Canadian per U.S. dollar. The revised expected future exchange rate ______ the demand for U.S. dollars and ______ the supply of U.S. dollars.
decreases; increases
mt3 A decrease in U.S. demand for imports ______ the supply of U.S. dollars. A fall in the U.S. interest rate differential ______ the supply of U.S. dollars. A rise in the expected future exchange rate ______ the supply of U.S. dollars. A decrease in the world demand for U.S. exports ______ the supply of U.S. dollars.
decreases; increases decreases; does not change
hw6. An increase in the population ______ the real wage rate and ______ the equilibrium quantity of labor. Potential GDP ______ and potential GDP per hour of labor ______.
decreases; increases increases; decreases
mt2. An increase in current income taxes ______ the supply of loanable funds today because it ______. A decrease in expected future income ______.
decreasesdecreases; decreasesdecreases disposable income, which decreasesdecreases saving increasesincreases the supply of loanable funds today because households with smallersmaller expected future income will save moremore today
P10. Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China _______ aggregate supply.
decreases China's short-run
P10. The "average overall increase across the board" wage increase _______.
decreases short-run aggregate supply
P132. Potential GDP is $12 trillion and if real GDP equaled potential GDP, the budget deficit would be $1 trillion. Real GDP actually equals $14 trillion and the budget surplus is $3 trillion. The economy has a structural ______ and a cyclical ______.
deficit of $1 trillion; surplus of $4 trillion
P9. In the long run, the real exchange rate is determined by ______ and the nominal exchange rate is determined by ______.
demand and supply in the markets for goods and services; the quantities of money in two countries
P9. A flexible exchange rate is an exchange rate that is determined by ______ in the foreign exchange market with no direct intervention by the _____.
demand and supply; central bank
P12. Getting a Raise: Why It's Not Happening- Read the news clip, then answer the following questions. An economy experiences _______ inflation when "wages tend to feed inflation."
demand-pull
P12. Official: China May Face Heavy Inflation Pressure- Read the news clip, then answer the following question. China is experiencing a ______ inflation caused by ______.
demand-pull; loose monetary policy, which increases aggregate demand
P12. In new classical cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate _____, determines the _____ and the position of the SAS curve.
demand; money wage rate
T92. Suppose a Canadian dollar bank deposit in Toronto earns 3 percent a year and a U.S. dollar bank deposit in Chicago earns 4 percent a year. What expectations do people hold if interest rate parity is to hold? For interest rate parity to hold, people expect that the U.S. dollar will ____ by ____ percent.
depreciate; 1
P9. If a euro deposit in a bank in Paris, France, earns interest of 0.7 percent a year and a yen deposit in Tokyo, Japan, earns 4.4 percent a year, other things remaining the same and adjusted for risk, what is the exchange rate expectation of the Japanese yen? The Japanese yen exchange rate is expected to ____ against the Euro by ____ percent.
depreciate; 3.7
DSM7. The decline in capital's value over a period of time is known as __________.
depreciation
preferences
description of a person's likes and dislikes and the intensity of those feelings
economic model
description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand
hw8. The ratio of reserves to deposits that a bank plans to hold is its ______. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has ______.
desired reserve ratio; excess reserves
DSM4. In measuring changes in the standard of living of a country, economists rely heavily on comparisons over time of real GDP per capita because:
despite its well-known flaws, it is the best means we have of comparing the performance of an economy over time
hw6. Potential GDP is ______.
determined by the full-employment quantity of labor
mt2. Potential GDP is ______.
determined by the full-employment quantity of labor
DSM4. As the value of a country's real GDP increases, the country is likely to:
devote more resources to pollution reduction
P132. An increase in the income tax rate is an example of ______.
discretionary fiscal policy
DSM13 The American Recovery and Reinvestment Act of 2009 is a clear example of:
discretionary fiscal stimulus.
mt3. The relationship between saving and _____, other things remaining the same, is called the saving function.
disposable income
DSM7. The best measure of the income households actually have available to spend is:
disposable personal income
DSM6. Which of these is most likely to increase productivity?
Investments in research and development
mt1. What is an economic model?
It is a simplified version of some aspect of economic life used to analyze some economic issue
T122. Deflation in Japan arose because _______.
Japan's money stock did not grow fast enough to accommodate the growth of potential GDP and a trend rise in velocity.
mt1. Boeing Bets the House- The components of the 787 Dreamliner that Boeing produces in Japan are part of ______ GDP. The aircraft that are assembled in the United States and sold to All Nippon Airways are part of ______ GDP.
Japan's; U.S
10. Shoppers Stimulate Discount Stores- The ______ macroeconomic school of thought justifies the policy discussed in this news clip.
Keynesian
12. According to _______ cycle theory, fluctuations in aggregate demand are primarily caused by fluctuations in confidence.
Keynesian
P10. Based on this news clip, Barack Obama most likely follows the ______ school of thought and John McCain most likely follows the ______ school of thought.
Keynesian or new Keynesian; classical or new classical
10. __________ advocates active government intervention via fiscal policy when the economy is in recession.
Keynesian theory
P12. In ______ cycle theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand. In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
Keynesian; monetarist new Classical; new Keynesian
mt3. In ______ cycle theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand. In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
Keynesian; monetarist new classical; new Keynesian
10. Draw the long-run aggregate supply curve when potential GDP is $13.5 trillion. Label it.
LAS completely horizontal at 13.5 trillion
P102. A rise in the money wage rate ______.
does not change the LAS curve because along the LAS curve a rise in money wage rate is accompanied by an equal percentage change in the price level.
hw3. With the period of low rainfall extending, dairies raise their expected price of low-fat milk next year. The supply of low-fat milk ______ today. With advice from health-care experts, dairy farmers decide to switch from producing full-cream milk to growing vegetables. The supply of low-fat milk ______. A new technology lowers the cost of producing ice cream. The supply of low-fat milk ______.
does not change; decreases increases
hw4. Real GDP ______.
does not include a measure of leisure time or environmental quality
P10. If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
does not change; long-run
P12. The table shows the aggregate demand and short-run aggregate supply schedules of Shell Island in which potential GDP is $600 billion. The economy is at full-employment. The government of Shell Island announces an increase in spending of $50 billion a year and the central bank will increase the quantity of money to pay for the spending. Does the economy go into a boom? Will there be inflation? The economy _____ into a boom, real GDP _____ billion, and _____ arises.
does not go; remains at $600; inflation
PT6. Year Real GDP (trillions of yen) Population (billions) 2009 455,000 650 2010 511,567 683 The table provides some data on real GDP and the population of Eastiana in 2009 and 2010. If the growth rates of 2010 are maintained in future years, real GDP per person in Eastiana will ______.
double by 2020
mt2. The table provides some data on real GDP and the population of Atlantis in 2010 and 2011. If the growth rates of 2011 are maintained in future years, real GDP per person in Atlantis will ______.
double by 2029
PT6. Year Real GDP (trillions of yen) Population (billions) 2011 280,000 400 2012 288,456 404 The table provides some data on real GDP and the population of Asiana in 2011 and 2012. If the growth rates of 2012 are maintained in future years, real GDP per person in Asiana will ______.
double by 2047
hw6. The Rule of 70 states that the number of years it takes for the level of any variable to ______ is approximately ______. If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ percent a year.
double; 70 divided by the annual percentage growth rate of the variable 3.5
DSM8. Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that:
each additional dollar of reserves creates $5 of deposits.
P12. A rational expectation is a forecast that results from the use of all the relevant data and _____.
economic science
PT7. The Ricardo-Barro effect _____ crowding out.
eliminates
PT5. An increase in labor productivity increases potential GDP because ______.
employment increases and a given amount of employment produces more real GDP
9. Interest rate parity means ______.
equal rates of return
mt3. Interest rate parity means ______.
equal rates of return
P9. Interest rate parity, which means _____ across currencies, means that for risk free transactions, there is _____ gain from choosing one currency over another.
equal rates of return; no
P9. Arbitrage in the foreign exchange market and international loans market achieves all of the following except _______.
equal real exchange rate across the major currencies
PT6. Choose the statement that is incorrect.
Labor hours are all equally productive.
hw6. Choose the statement that is incorrect.
Labor hours are all equally productive.
PT5. Once a month, the Bureau of ______ Statistics calculates the Consumer Price Index, which is a measure of the ______ consumers for a fixed basket of consumer goods and services.
Labor; average of the prices paid by urban
P131. The relationship between the tax rate and the amount of tax revenue collected is called the ______ curve. This curve shows that ______.
Laffer curve; tax cuts increase tax revenue
P101. Which of the following statements about the monetarist view of the macroeconomy is incorrect?
Left alone, the economy rarely operates at full employment
10. Which of the following statements about the monetarist view of the macroeconomy is incorrect?
Left alone, the economy rarely operates at full employment.
mt3. Which of the following statements about the monetarist view of the macroeconomy is incorrect?
Left alone, the economy rarely operates at full employment.
hw8. Choose the statement that is incorrect.
Liquid assets have a higher interest rate than securities.
mt2. Choose the statement that is incorrect.
Liquid assets have a higher interest rate than securities.
10. Which of these shifts the aggregate demand curve to the right?
Lower interest rates
DSM7. What is the relationship between investment and real interest rates, all other things being equal?
Lower interest rates stimulate investment.
DSM8. The equation of exchange is:
M x V = P x Q
DSM8. The sum of all currency in the hands of the public, checkable deposits and traveler's checks is the official definition of __________.
M1
P111. Which of the following equations is incorrect?
MPC + MPS = change in YD
mt3. Which of the following equations is incorrect?
MPC + MPS = ΔYD
mt2. The equation of exchange is ______ and it is true ______.
MV = PY; by definition
DSM6. The role of technological progress in determining economic growth can be described by which statement?
Per capita output will rise when we discover new and more effective uses of capital and labor.
PT5. When the unemployment rate ______ the natural unemployment rate, real GDP ______ potential GDP.
equals; equals
DSM8. The __________ links the quantity of money, velocity of circulation, price level, and real GDP.
equation of exchange
P11. The government expenditure multiplier equals the change in _____ that results from a change in government expenditure divided by the change in government expenditure.
equilibrium expenditure and real GDP
PQ13. The government expenditure multiplier is the effect of a change in government expenditure on goods and services on _____.
equilibrium real GDP
PQ13. The tax multiplier is the effect of a change in taxes on _____.
equilibrium real GDP
P10. A below full-employment equilibrium is an equilibrium in which potential GDP _____ real GDP.
exceeds
P10. When potential GDP _____ real GDP, the output gap is called a recessionary gap.
exceeds
mt3. When potential GDP _____ real GDP, the output gap is called a recessionary gap.
exceeds
P10. An above full-employment equilibrium is an equilibrium when real GDP _____.
exceeds potential GDP
P131. When an economy is below full employment and the government has a budget deficit, that deficit ______.
exceeds the structural deficit
economic growth
expansion of production possibilites
PT7. The supply of loanable funds is influenced by all of the following except ______.
expected profit
hw2. Kelly is an architect, and she is trying to decide whether to hire Mike, a draftsman, to assist with her work. Kelly could hire Mike at $20 per hour, but it would take him three times as long to complete a task as it takes Kelly. Kelly is able to earn $90 per hour and has more architectural jobs than she is able to handle. Which of the following is true?
Mike should be hired at the $20 per hour wage rate.
10. Which of these policies affects the economy through intended changes in the quantity of money and interest rates?
Monetary policy
DSM8. The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________.
Monetary policy
DSM13 Which of these are the largest sources of federal government revenues?
Personal income taxes and Social Security taxes
P101. Choose the statement that is incorrect.
Over the business cycle, aggregate supply fluctuates around potential GDP.
10. Choose the statement that is incorrect.
Over the business cycle, aggregate supply fluctuates around potential GDP.
P121. An economy at a full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate ______ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to ______.
falls below; rise
P9. A country has a higher inflation rate than all other countries, and it has slower economic growth. The central bank does not intervene in the foreign exchange market. To preserve purchasing power parity, the exchange rate ______. If investment from foreigners decreases due to the slow economic growth, the current account balance is becoming more ______. It is expected that in the future the exchange rate will ______. The interest rate differential is ______.
falls; positive fall; positive
hw3. Consumers' actions indicate that airline tickets and hotel rooms are complements. Suppose that for some reason the price that airline companies pay to buy airplane fuel falls. As a result --- assuming all other relevant factors remain unchanged --- the price of airline tickets _____________, and the price of hotel rooms _______________.
falls; rises
12. An economy at a full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate ______ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to ______.
falls below; rise
hw3. "As fewer people buy gym memberships, the demand for running shoes will decrease and the price of a pair of running shoes will increase. The rise in the price of a pair of running shoes will increase the supply of running shoes." This statement is ______ because ______.
false; a decrease in demand for running shoes does not increase the price of a pair of running shoes and an increase in the price of a pair of running shoes does not increase the supply of running shoes
T92. Between 2007 and 2012, the U.S. exchange rate ______ against the Japanese yen because the U.S. interest differential _______ ______ against the yen.
fell; decreased and because currency traders expected the dollar to depreciate
P131. Prior to the Great Depression, the purpose of the federal budget was to ______.
finance federal government programs and activities
hw4. The factor market can best be described as where
firms buy the services of labor, land and capital.
discretionary fiscal policy
fiscal action that's initiated by an act of Congress
PQ13. Generational Imbalance is the division of _____ between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits.
fiscal imbalance
DSM13 Government policies that increase aggregate demand are called __________.
fiscal stimulus
DSM5. The consumer price index is an index computed using prices of a __________.
fixed basket of goods and services purchased by the typical consumer
9. A __________ is one where the government or central bank determines their exchange rate by intervening in the foreign exchange market.
fixed exchange rate
9. A __________ is where a government or central bank intervenes in currency exchange markets and buy or sell currency in order to keep an exchange rate fixed or on a determined path.
fixed exchange rate or a crawling peg
P9. In the 1950s and 1960s, the United States operated a ______. Now the United States operates a ______ .
fixed exchange rate; flexible exchange rate
9. A country that allows demand and supply to determine the value of its currency is said to have a __________.
flexible exchange rate
hw4. Which of the following is a final good?
flour purchased at the store to bake cookies
P12. According to RBC theory, the source of the business cycle is _______, which result mainly from _______.
fluctuations in productivity; fluctuations in the pace of technological change
9. A crawling peg exchange rate policy is one that _______.
follows a path determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market
P9. A crawling peg exchange rate policy is one that _______.
follows a path determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market
10. A monetary growth rule that might be supported by a monetarist would be a plan:
for the Federal Reserve to increase the quantity of money at a fixed rate and not respond to economic fluctuations.
P9. U.S. official reserves are the government's holding of _____.
foreign currency
P9. The official settlements account records the change in U.S. official reserves, which are the government's holdings of ______. If U.S. official reserves decrease, the official settlements account balance is ______.
foreign currency; positive.
9. The market in which the currency of one country is exchanged for the currency of another country is the ______. The price at which one currency exchanges for another currency is the ______.
foreign exchange market; exchange rate
T91. The market in which the currency of one country is exchanged for the currency of another country is the ______. The price at which one currency exchanges for another currency is the ______.
foreign exchange market; exchange rate
P9. The capital and financial account is the record of _____ minus U.S. investment abroad.
foreign investment in the United States
PT5. The unemployment that arises from normal labor turnover—from people entering and leaving the labor force— and from the ongoing creation and destruction of jobs isand from the ongoing creation and destruction of jobs is ______ unemployment.
frictional
mt2. The Current Population Survey reported the following situations in July 2014: • Sarah works 10 hours a week at McDonald's. She is available to work more hours but hasn't looked for extra work. • Kevin spent the first six months of 2014 actively searching for a job but he didn't get hired. He believes there are no jobs, so he has given up looking. • Pat quit the job he had for the past two years and is actively looking for a better paying job. He is available to work and is still searching for a job. • Mary is a new graduate who was hired while she was a student to start a job in August. • Johnnie quit his band in June, has no job in July, and is not looking for work. 1. Who does the BLS classify as being unemployed, a part-time worker, an employed person, a discouraged worker, and not in the labor force? Explain your classification. ______ are unemployed, ______ is a part-time worker, _____ is a discouraged worker, and _____ is not in the labor force. 2. How will the labor force change if the following events occur? 1. Sarah starts a second job 2. Pat finds a good job and is hired. 3. Mary takes a job at McDonald's while she waits to start her new job. 3. How will the unemployment rate change if Sarah quits and starts to search for a full-time job? The unemployment rate will _____ if Sarah quits and starts to search for a full-time job. 4. How will the labor force participation rate change if Kevin starts creating football apps in his garage and they turn out to be very popular? The labor force participation will _____ Kevin starts creating football apps in his garage and they turn out to be very popular.
Pat and Mary; Sarah; Kevin; Johnie Events 1, 2, and 3 will not change the labor force. rise rise
PQ13. Fiscal imbalance is the ______ value of the government's commitments to pay benefits minus the ______ value of its tax revenues. The division of the fiscal imbalance between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits, is called ______ imbalance.
Present, Present generational
mt2. Choose the statement that is incorrect.
President Roosevelt's "New Deal" minimized the role of government in economic lifePresident Roosevelt's "New Deal" minimized the role of government in economic life.
PQ13. The Council of Economic Advisers monitors the economy and keeps the _____ informed about the current state of the economy and the best available forecasts of where it is heading.
President and the public
hw3. A change in _____ (one word) causes movement along a demand curve and a change in _____ (two words). Changes in what six things cause a shift of the demand curve? (Look at the PP slide with the bubbles.)
Price; Quantity demanded preferences,related goods,future prices,income,future income,population
DSM3. In a market system, which of the following provides the information that individuals need to make decisions about resource allocation?
Prices
DSM8. When we say that money serves as a unit of account, we mean that:
Prices are quoted in terms of money.
E. Private Sector Balance
Priv Sector Balance= savings - investment
DSM6. Which of these government policies can help economic growth?
Promoting higher rates of saving
DSM2. What are copyrights designed to accomplish?
Protect intellectual property rights
hw2. Choose the correct statements. 1. We measure the marginal benefit from a good or service by the most that people are willing to pay for an additional unit of it. 2. The marginal benefit from a good or service is the benefit received from consuming one more unit of it. 3. We measure the marginal benefit from a good or service by the least that people are willing to pay for all the units they consume. 4. We measure the marginal benefit from a good or service by the most that people are willing to pay for all the units they consume.
Statements 1 and 2 are correct.
12. According to the ____ theory of business cycles, a change in the monetary growth rate has no effect on real GDP.
Real Business Cycle
E. Real Exchange Rate
Real Exchange Rate= (Exchange Rate x U.S. Price Level) / Foreign Price Level
DSM4. Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?
Real GDP
hw6. Choose the statement that is incorrect
Real GDP per person grows whenever real GDP grows.
P12. Debate on Causes of Joblessness Grows- ______ cycle theory would say that the rise in unemployment is not cyclical but is a change in the natural unemployment rate.
Real business
DSM4. Which phase of the business cycle is characterized by decreasing levels of real GDP?
Recession
hw4. Choose the option that is an example of government expenditure.
Secret service protection for the President
DSM8. The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate.
Seven, 14-year terms, President
P10. The table shows the aggregate demand and short-run aggregate supply schedules of a country in which potential GDP is $1,050 billion. What is the short-run equilibrium real GDP and price level? The country has _____ gap. The magnitude of the _____ gap is _____ billion.
Short-run equal real GDP: 1000 Price level: 130 a recessionary recessionary; 50
hw3. Choose the correct statements about competitive markets. 1. A competitive market has many buyers. 2. All competitive markets are physical places where buyers and sellers meet. 3. A competitive market is a market for services but not for goods. 4. A competitive market has many sellers.
Statements 1 and 4 are correct
P132. Choose the correct statements. 1. A government budget deficit increases government debt. 2. In 2014, the Euro area had the largest deficit in the world, expressed as a percentage of GDP. 3. Since 2002, U.S. government debt has been decreasing. 4. Upper A persistent budget deficit feeds itself.
Statements 1 and 4 are correct.
hw5. Governor Plans to Boost Economy with Ecofriendly Jobs-The main type of unemployment that Governor Kulongoski is using policies to avoid is ______. If these policies are successful, we would expect to see Oregon's natural unemployment rate ______.
frictional and structural fall
DSM5. The short-term unemployment that arises from workers, in the process of changing jobs, is called __________.
frictional unemployment
DSM5. The unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified employees, is called:
frictional unemployment
mt1. Refer to the production possibilities frontier in the figure. Which of the following movements requires the largest opportunity cost, in terms of good Y forgone, per extra unit of good X?
from point d to point e
DSM13 One of the primary goals of most governments with regard to the economy is:
full employment
DSM5. The "normal or natural" underlying level of unemployment in the economy is the __________.
full employment rate of unemployment
DSM7. The financial capital markets exist in order to __________.
funnel household savings to firms
output gap
gap between real GDP and potential GDP
extended deposit insurance
gave depositers greater security, increasing deposits and reserves and liquidity
P132. An accounting system that measures the lifetime tax burden and benefits of each generation is called ______.
generational accounting
P131. The division of the fiscal imbalance between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits, is the ______.
generational imbalance
land
gifts of nature that we use to produce goods and services
mt1. In a world lacking property rights, it would be ________ to realize the gains from trade and there would be ________ specialization.
harder; less
PQ13. Government debt is the total amount that government _____.
has borrowed
12. According to real business cycle theory, shifts in aggregate demand:
have no impact on real GDP.
hw5. A typical family on Sandy Island consumes only juice and cloth. Last year, which was the base year, the family spent $18 on juice and $25 on cloth. In the base year, juice was $6 a bottle and cloth was $5 a length. This year, juice is $8 a bottle and cloth is $8 a length. What is the CPI basket? What is the CPI and the inflation rate in the current year?
he CPI basket is 3 bottles of juice and 5 lengths of cloth. The CPI in the current year is 148.8. >>> Answer to 1 decimal place. The inflation rate in the current year is 48.8 percent.
DSM5. A firm that pays an efficiency wage is paying a wage that is __________ the current market wage.
higher than
DSM5. If the minimum wage is set above the market-determined equilibrium wage, the natural unemployment rate will be __________.
higher than it would be without a minimum wage
cyclical unemployment
higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak
T91. The law of supply of foreign exchange states that other things remaining the same, the ______ the exchange rate, the ______ in the foreign exchange market.
higher; greater quantity of US dollars supplied
P12. Suppose that the business cycle in the United States is best described by RBC theory. An advance in technology increases productivity. The when-to-work decision depends on the real interest rate. The _____ the real interest rate, other things remaining the same, the _____ is the supply of labor today. RBC theorists believe the when-to-work effect is ____.
higher; larger large
hw4. If we compare the four sources of spending in the economy we see that
household consumption is the largest.
hw4. In the figure, flow B represents ________
household purchases of goods and services
hw7. What are the three sources of global investment funds? (Separate with a comma, no plurals or abbreviations.)
household saving,government budget surplus,borrowing from rest of world
DSM7. The flow of funds from __________ into the financial system makes it possible for government and firms to borrow.
households
PT8. A depository institution takes deposits from ______ and earns most of its income by _______. The deposits of the following three types of depository institutions make up the nation's money: ______.
households and firms; making loans and buying securities that earn a higher interest rate than that paid to depositors commercial banks, thrift institutions, and money market mutual funds
P131. The quantity of investment and borrowing that firms plan to undertake depends on ______.
how productive capital is and what it costs
hw6. The aggregate production function is the relationship that tells us ______, when all other influences on production remain the same.
how real GDP changes as the quantity of labor changes
PT6. The fundamental source of labor productivity growth is ______.
human capital
entrepreneurship
human resource that organizes the other 3 factors of production: land, labor and capital
DSM5. Unanticipated deflation __________.
hurts borrowers
P12. Getting a Raise: Why It's Not Happening- Read the news clip, then answer the following questions. Choose the statement that is incorrect. Starting from a long-run equilibrium, _______. "Wages typically track inflation, soaring higher when prices take off." In this situation, the economy is experiencing _______ inflation.
if the percentage change in the money wage rate equals the percentage change in the unemployment rate, the economy remains at full employment. demand-pull
absolute advantage
if you are more productive than another person
P9. Read the news clip, then answer the following question. The news clip states that huge trade deficits "seem like a pretty good indication that the dollar was overvalued in global currency markets and needed to come down". This statement is ______ because ______.
inaccurate; the current account balance is determined by the private sector balance and the government sector balance
mt1. The United Nations' Human Development Index (HDI) is based on real GDP per person, life expectancy at birth, and indicators of the quality and quantity of education. The HDI might be better than real GDP as a measure of economic welfare because the HDI ______. The HDI includes measurements of ______, which are not measured in real GDP. If the HDI is expanded to include items such as pollution, resource depletion, and political freedom ______. Other influences on economic welfare that could be included in a comprehensive measure include all of the following except ______.
includes real GDP, but also includes other factors that influence our standard of living; health, life expectancy, and education it would be difficult to measure the beauty of local scenery
rent
income that land earns
PT8. Suppose the Fed buys $50 million of government securities from the Bank of America. The Fed's total assets ______ and its total liabilities ______. The Bank of America's total assets ______ and its total liabilities ______.
increase by $50 million; increase by $50 million do not change; do not change
DSM13 When the economy is at full employment, a cut in household taxes will __________.
increase consumption
DSM13. __________ maintains that tax policy can either create or destroy incentives to work, save, and invest.
Supply-side theory
P11. ______ bring business cycle turning points. ______ is triggered by a decrease in autonomous expenditure and ______ is triggered by an increase in autonomous expenditure.
Swings in autonomous expenditure A recession; an expansion
PT7. I = ______.
S + (T - G) + (M - X)
P132. Choose the correct statement.
Tax cuts can increase tax revenue.
DSM6. Which of these will ensure that an economy experiences labor productivity growth?
Technological change
P102. Which of the following statements about the Keynesian view of the macroeconomy is incorrect?
Technological change is the most significant influence on both aggregate demand and aggregate supply.
DSM6. Which of these factors contributes to economic growth?
Technological progress
T 122 In real business cycle theory, _______ are the main source of economic fluctuations.
random fluctuations in productivity
PT6. Convergence between real GDP per person in the United States and Japan was relatively ______ during the 1960s; convergence has recently been ______.
rapid; decreasing
P10. The defining feature of the Keynesian view of macroeconomics is that the economy is ______. Keynesian macroeconomists recommend ______.
rarely at full employment policies that actively offset changes in aggregate demand that bring recession
federal discount rate
rate at which an eligible financial institution may borrow funds directly from a Federal Reserve Bank influences other short term interest rates
Federal funds rate
rate at which banks and other depository institutions lend money to each other, usually on an overnight basis fed can influence behavior by controlling supply and demand of $
prime rate
rate at which banks will lend money to their most favored customers
currency drain ratio
ratio of currency to deposits
desired reserve ratio
ratio of reserves to deposits that banks plan to hold
money multiplier
ratio of the change in quantity of money to the change in the monetary base
P10. The gap between ______ is the output gap. When _____, the output gap is called an inflationary gap.
real GDP and potential GDP; real GDP exceeds potential GDP
DSM4. The GDP per capita is computed by dividing a country's:
real GDP by its population
Real GDP per person
real GDP divided by the population real GDP / population
P10. When _____ there is a full-employment equilibrium
real GDP equals potential GDP
hw4. The relationship between real GDP and potential GDP is that
real GDP fluctuates about potential GDP.
PT6. Real GDP per person grows when ______.
real GDP grows at a faster rate than the population grows
mt1. An expansion is a period during which _____.
real GDP increases
P132. If a structural surplus exists but the government's budget is balanced, then ______.
real GDP is less than potential GDP.
DSM6. Because the focus of long-run economic growth is on the standard of living of the average person, we measure the standard of living in terms of:
real GDP per capita
PT5. By measuring ______, we can see that the economy of Singapore has caught up to and surpassed the economy of the United States, but that the economies of Central and South America have not.
real GDP per person
mt2. Neoclassical growth theory is the proposition that _____ grows because technological change induces saving and investment that make _____ grow.
real GDP per person; capital per hour of labor
P102. The table gives the aggregate demand schedule, the short-run aggregate supply schedule, and the long-run aggregate supply schedule for an economy. What is the quantity of real GDP at the short-run macroeconomic equilibrium? The quantity of real GDP at the short-run macroeconomic equilibrium is $450 billion. The economy has ______.
recessionary gap of $50 billion
P12. Real Wages Fail to Match a Rise in Productivity- In real business cycle theory, an increase in productivity ______ the demand for labor by more than it ______ the supply of labor. In the news clip, productivity gains exceed pay increases because the demand for labor ______ than the ______ in the supply of labor.
increases; increases increases by less; increase
PT7. A decrease in current income taxes ______ the supply of loanable funds today because it ______. A decrease in expected future income ______.
increases; increases disposable income, which encourages greater saving increases the supply of loanable funds today because households with smaller expected future income will save more today
PQ13. Fiscal Policy Priorities In 2008, the Obama administration proposed the following fiscal policy actions: (1) Increased spending on universal health insurance ($65 billion), alternative energy ($15 billion), help for homeowners ($20 billion), infrastructure ($60 billion), a scheme to pay college tuition in exchange for public service ($10 billion), and many other projects. (2) End Bush-era tax cuts on families with incomes greater than $250,000, increase payroll taxes on high-income earners, increase the tax rate on capital gains to 25 percent, increase the tax on dividends, and end arrangements that enable corporations to lower their taxes. Expenditure on alternative energy and the nation's infrastructure ______ short-run aggregate supply and ______ potential GDP Ending the Bush tax cuts ______ short-run aggregate supply and ______ potential GDP. Expenditure on college tuition ______ short-run aggregate supply and ______ potential GDP. Increasing taxes on business and investment ______ short-run aggregate supply and ______ potential GDP.
increases; increases; decreases; decreases increases; increases decreases; decreases
PT8. An increase in real GDP ______ the demand for money and financial innovation ______.
increases; might increase the demand for some types of deposits and decrease the demand for others
P121. In an expansion, an increase in the rate of technological change _______ investment demand. The real interest rate _______.
increases; rises
10. Aggregate demand decreases if fiscal policy ______ taxes or ______ transfer payments.
increases; decreases
hw7. A decrease in current income taxes ______ the supply of loanable funds today because it ______. A decrease in expected future income ______.
increases; increases disposable income, which encourages greate saving increases the supply of loanable funds today because households with smaller expected future income will save more today
P102. Aggregate demand increases if expected future income, inflation, or profits ______. And aggregate demand increases if fiscal policy ______ government expenditure. Aggregate demand increases if fiscal policy ______ taxes or ______ transfer payments. Aggregate demand increases if monetary policy ______ the quantity of money and ______ interest rates. ggregate demand increases if the exchange rate ______ or foreign income ______.
increase; increases decrease; increase increases; decreases decreases; increases
10. According to Keynesian theory, fiscal policymakers can combat the impact of recessions by:
increasing government spending.
DSM6. The only way that the standard of living of the average person in a country can increase is by:
increasing production faster than population growth
P12. Deflation can be ended by _______.
increasing the growth rate of the quantity of money
T122. When costs increase and the Fed wants to return the economy to full employment, the Fed responds by ______ the quantity of money. If the Fed continually responds to successive increases in costs, a ______ inflation evolves.
increasing; cost-push
P112. Consumption expenditure minus imports, which varies with real GDP, is called _______.
induced expenditure
DSM5. A sustained increase in the overall level of prices is known as:
inflation
DSM5. If the inflation rate is low, steady, and anticipated, __________.
inflation may not be a major problem
DSM5. The percentage rate of change in the price level is the definition of the:
inflation rate
P12. The short-run phillips curve is a curve that shows the relationship between the _____ rate and _____ when _____ and the _____ remain constant.
inflation; the unemployment rate; the natural unemployment rate; expected inflation rate
P12. The long-run Phillips curve is the relationship between _____ and _____ when the economy is at full employment. The long-run Phillips curve is a _____ line at the _____ unemployment rate.
inflation; unemployment; vertical; natural
P101. Draw an aggregate demand curve in an economy with an above full-employment equilibrium. Label it AD. Draw a point at the above full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the output gap. The output gap in the graph is ______ because ______.
inflationary gap; potential GDP is less than real GDP
P101. An economy is in a long-run equilibrium. An increase in aggregate demand creates ______ gap. A rise in the money wage rate decreases ______ and returns the economy to a full-employment equilibrium.
inflationary; quantity of real GDP demanded.
federal funds rate
interest rate that the banks charge each other on overnight loans
mt2. In the short run, the quantity of real money and real GDP are given and the ______ adjusts to achieve equilibrium. In the long run, supply and demand in the loanable funds market determines the ______. In the long run, _______ adjusts to make the quantity of real money supplied equal the quantity demanded.
interest rate; real interest rate the price level
mt2. When the Federal Reserve Bank increases the federal funds rate, other
interest rates rise, and consumption, firms' private investment and net exports decrease.
mt3. When the Federal Reserve Bank increases the federal funds rate, other
interest rates rise, and consumption, firms' private investment and net exports decrease.
hw8. In the short run, the quantity of real money and real GDP are given and the ______ adjusts to achieve equilibrium. In the long run, supply and demand in the loanable funds market determines the ______. In the long run, _______ adjusts to make the quantity of real money supplied equal the quantity demanded.
interest rate; real interest rate the price level
P9. Balance of payments accounts are the accounts in which a nation records its _____.
international trading, borrowing, and lending
mt3. Balance of payments accounts are the accounts in which a nation records its _____.
international trading, borrowing, and lending
P111. If aggregate planned expenditure exceeds real GDP, then _______.
inventories decrease, and as real GDP increases, a movement up along the AE curve occurs
P112. If aggregate planned expenditure is less than real GDP, then _______.
inventories increase, and as real GDP decrease a movement down the AE curve.
P9. A creditor nation is a country that during its entire history has _____ the rest of the world than other countries have _____ it.
invested more in; invested in
P12. In monetarist cycle theory, fluctuations in both _____, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuation in aggregate demand.
investment and consumption expenditure
mt3. In monetarist cycle theory, fluctuations in both _____, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuation in aggregate demand.
investment and consumption expenditure
P12. In Keynesian cycle theory, fluctuations in _____ driven by fluctuations in business confidence - summarized by the phrase "animal spirits" - are the main source of fluctuations in _____.
investment; aggregate demand
mt1. Adam Smith's ________ refers to the process by which individuals acting in their own selfminus−interest bring about a market outcome that benefits society as a whole.
invisible hand
10. Stagflation ______.
is a combination of recession and inflation
hw3. A demand curve _______.
is a willingness-and-ability-to-pay curve
T91. One consequence of China operating a crawling peg is that China ______. China fixes its exchange rate ______.
is accumulating US dollars as a way of achieving a low inflation rate
9. A flexible exchange rate is one that _______.
is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank
P9. A flexible exchange rate is one that _______.
is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank
mt3. A flexible exchange rate is one that _______.
is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank
DSM13 The structural budget deficit or surplus:
is measured as if the economy were at full employment.
P12. From the Fed's Minutes- Read the news clip, then answer the following question. FOMC members are predicting that the U.S. economy ______.
is on a short-run Phillips curve to the right of the LRPC and will move leftward up along the SRPC
9. A fixed exchange rate is one that _______.
is set by the government or the central bank and is achieved by central bank intervention in the foreign exchange market
P9. A fixed exchange rate is one that _______.
is set by the government or the central bank and is achieved by central bank intervention in the foreign exchange market
P131. The cyclical surplus or deficit ______.
is the actual surplus or deficit minus the structural surplus or deficit
P131. The structural surplus or deficit ______.
is the budget balance that would occur if the economy were at full employment
P9. Arbitrage _______.
is the practice of seeking to profit by buying in one market and selling for a higher price in another related market
PT5. The natural unemployment rate _______.
is the unemployment rate at full employment
12. The long-run Phillips curve __________.
is vertical at the natural rate of unemployment
hw8. From Paper-Clip to House, in 14 Trades- Barter ______ a means of payment. When trading on e-Bay, barter _______.
is; is not as efficient as money because barter requires a double coincidence of wants
DSM5. If inflation is anticipated, __________.
it costs less to society than if unanticipated
10. If the economy moves into a recession, monetarists argue that the Fed should:
keep the money supply growing at a constant rate.
mt2. The key proposition of new growth theory that makes growth persist is that ______ is not subject to diminishing returns.
knowledge capital
PT6. According to new growth theory, ______ experience diminishing returns.
knowledge is capital that does not
mt2. According to new growth theory, ______ experience diminishing returns.
knowledge is capital that does not
DSM5. The ratio of the labor force to the adult population is known as the:
labor force participation rate
Open market operations
large interest rate cuts to provide liquidity
P132. The _______ lag is the time it takes Congress to pass the laws needed to change taxes or spending.
law-making
DSM8. When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed __________.
lends to banks that are short of reserves and cannot find any other source of funds
equilibrium expenditure
level of aggregate expenditure that occurs when aggregate planned expenditure equals real GDP aggregate planned expenditure = real GDP
hw8. Suppose the Fed increases the quantity of money. In the long run, supply and demand in the ______ market determines the real interest rate. The ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.
loanable funds; price level
DSM8. On the balance sheet of commercials banks __________.
loans are the largest asset
hw7. The three main types of markets for financial capital are _______.
loan markets, bond markets, and stock markets
hw4. A Half-Year of Job Losses- According to the news clip, the main source of increased unemployment might be ______, and the main type of increased unemployment is ______.
losses in manufacturing and construction jobs; cyclical
DSM8. When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________.
low, high
9. The exports effect is the result that the lower the exchange rate, other things remaining the same, the ______.
lower are the prices of U.S.-produced goods and services to foreigners and the greater is the volume of U.S. exports
P9. The exports effect is the result that the lower the exchange rate, other things remaining the same, the ______.
lower are the prices of U.S.-produced goods and services to foreigners and the greater is the volume of U.S. exports
9. The imports effect is the result that the higher the exchange rate, other things remaining the same, the ______.
lower are the prices of foreign-produced goods and services to Americans and the greater is the volume of U.S. imports
P9. The imports effect is the result that the higher the exchange rate, other things remaining the same, the ______.
lower are the prices of foreign-produced goods and services to Americans and the greater is the volume of U.S. imports
DSM7. If the government is attempting to spur investment spending it should adopt policies that are designed to:
lower interest rates
DSM7. The __________ the interest rate, the more investment projects firms can profitably undertake, and the __________ the quantity of loanable funds they will demand.
lower, greater
DSM5. The unemployment rate in the United States is usually __________ than the unemployment rates in most European countries, partly because the United States has __________ generous benefits for the unemployed.
lower, less
DSM13 According to supply-side theory, fiscal policymakers can combat the impact of recessions by:
lowering tax rates.
keynesian
macroeconomist who believes that, left alone, the economy would rarely operate at full employment and that to achieve full employment, active help from fiscal policy and monetary policy is required
Federal Open Market Committee (FOMC)
main policymaking organ of the federal reserve system (The Fed)
P112. A decrease in the marginal propensity to import _______, everything else remaining the same.
makes the multiplier larger
mt3. A decrease in the marginal propensity to import _______, everything else remaining the same.
makes the multiplier larger
11. An increase in income taxes _______, everything else remaining the same.
makes the multiplier smaller
P111. An increase in income taxes _______, everything else remaining the same.
makes the multiplier smaller
mt3. An increase in income taxes _______, everything else remaining the same.
makes the multiplier smaller
13. Which of the following is not a role played by the Budget Committees of the House of Representatives and the Senate in creating fiscal policy?
making the initial budget proposal in February
PQ13. Which of the following is not a role played by the Budget Committees of the House of Representatives and the Senate in creating fiscal policy?
making the initial budget proposal in February
DSM5. In calculating the CPI, the __________.
market basket does not include large equipment purchased by firms
bond market
market in which bonds issued by firms and governments are traded
gross domestic product (GDP)
market value of all final goods and services produced within a country during a given time period
DSM4. Gross domestic product (GDP) is best defined as the __________.
market value of the final goods and services produced within a country in a given time period
DSM4. The GDP is a measure of the __________.
market value of the final goods and services produced within a country in a given time period
M2
measure of money that consists of M1 + time deposits, savings deposits, money market mutual funds and other deposits
hw3. The quantity demanded of a good or service is ______.
measured as an amount per unit of time
DSM5. The consumer price index __________.
measures the average of prices paid by urban consumers for a fixed basket of consumer goods and services
hw8. Money serves as a ______.
medium of exchange, which means that it is generally accepted in exchange for goods and services
mt1. Real GDP ______ indicator of the standard of living because ______.
might be an unreliable; the standard of living depends on many factors, some of which are not part of real GDP
12. A rise in the price of oil:
might trigger a cost-push inflation
12. The school of thought that believes the activist policies of the Federal Reserve exacerbate economic fluctuations is __________
monetarist cycle theory
foreign currency
money of other countries regardless of whether that money is in the form of notes, coins or bank deposits
P10. Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment.
money wage rate
10. The classical view assumes:
money wage rates adjust quickly.
hw8. The money multiplier is the ratio of the change in the quantity of ______ to the change in the quantity of ______.
money; monetary base
P9. Purchasing power parity is equal value of _____ - a situation in which _____ buys the same amount of goods and services in different currencies.
money; money
mt3. Purchasing power parity is equal value of _____ - a situation in which _____ buys the same amount of goods and services in different currencies.
money; money
hw2. The figure shows the circular flows in the market economy. When Apple Inc. pays the designers of the iPad, the flows are a ______ from firms to households and a ______ from households to firms. When you buy a new e dash book from Amazon, the flows are a ______ from households to firms and a ______ from firms to households.
money flow; real flow money flow; real flow
P9. A net borrower is a country that is borrowing _____ from the rest of the world _____ it is lending to the rest of the world.
more; than
P9. A net lender is a country that is lending _____ to the rest of the world _____ it is borrowing to the rest of the world.
more; than
hw3. If the price of a taco falls, a ______ the demand curve occurs. If any factor that influences buying plans other than the price changes, then a ______ the demand curve occurs.
movement down along; shift of
mt1. A country that must decrease production of one good in order to increase the production of another
must be producing on its production possibilities frontier.
PT6. Between 1960 and 2010, the gap between real GDP per person in the United States and real GDP per person in Japan ______.
narrowed
mt2. Between 1960 and 2010, the gap between real GDP per person in the United States and real GDP per person in Japan ______.
narrowed
hw4. Shares in Ford Motor Company is an example of ______ good. A diamond purchased by Harry to give to Sally is an example of ______ good. Biscotti bought by Delta Airlines and served to passengers is an example of ______ good. The waste basket you bought when you moved into residence is an example of ______ good.
neither a final nor an intermediate; a final an intermediate; a final
12. If inflation is expected, _______.
neither a cost-push inflation nor a demand-pull inflation occur
T91. A country that is borrowing more from the rest of the world than it is lending to the rest of the world is a ______, and a country that during its entire history has borrowed more from the rest of the world than it has lent to it is a ______. Currently, the United States is a
net borrower; debtor nation debtor nation
T92. A country that is lending more to the rest of the world than it is borrowing from the rest of the world is a ______. A country that during its entire history has invested more in the rest of the world than other countries have invested in it is a ______. China, Japan, and Saudi Arabia are ______. The US is
net lender; creditor nation net lenders; net borrower
P102. A ______ macroeconomist believes that business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change. A ______ macroeconomist believes that the short-run aggregate supply curve is horizontal at a fixed price level.
new classical; new Keynesian
hw5. June 02- 179.9 June 03-183.7 June 04-189.7 The table shows three years of CPI data. The bias in these CPI numbers might arise from ______. Choose the statement that is incorrect.
new goods bias, quality change bias, commodity substitution bias, and outlet substitution bias The core PCE is a broader measure than the CPI that attempts to overcome biases by placing extra emphasis on food and fuel, two goods which are large components of household expenditure.
PT5. The main sources of bias in the CPI are ______. The bias in the CPI is a problem because ______ .
new goods bias, quality change bias, commodity substitution bias, and outlet substitution bias it distorts wage agreements linked to the CPI
T122. In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
new classical; new Keynesian
PT5. If we count marginally attached workers as unemployed ______.
no change occurs in employment-to-population ratio
12. Monetary stimulus designed to increase aggregate demand would have __________ on real output according to real business cycle theory.
no impact
DSM7. The stated rate of interest on a loan is the __________.
nominal interest rate
mt2. The demand for money is the relationship between the quantity of real money demanded and the ________ when all other influences on the amount of money that people wish to hold remain the same. When the nominal interest rate rises, the opportunity cost of holding money ______ and the quantity of real money demanded ______.
nominal interest rate rises; decreases
DSM13 Most economists would __________ a balanced federal budget mandate.
not be in favor of
mt2. Jobs Report: Hiring Up, Unemployment Down- If the only change that occurred was that all the newly hired people had been unemployed in October, then the labor force would ______ and unemployment would _______. If the only change that occurred was that people gave up job searching, then the labor force would _______ and unemployment would _______.
not have changed; have decreased have decreased; have decreased
DSM8. Credit cards are:
not part of the money supply.
Nominal interest rate
number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent
money price
number of dollars that must be given up in exchange for a good or service
P102. Long-run macroeconomic equilibrium ______.
occurs when real GDP equals potential GDP, and the LAS, SAS, and AD curves intersect
P9. Foreign currency is the money _____ regardless of whether that money is in the form of notes, coins, or bank deposits.
of other countries
P9. The official settlements account is the record of the change in U.S. _____.
official reserves
10. The economy is in long-run equilibrium when the short-run aggregate supply and the aggregate demand curve intersect at a point:
on the long-run aggregate supply curve
9. When the dollar appreciates against the yen, __________.
one dollar will buy more yen
hw2. The table shows Brazil's production possibilities for ethanol and food crops. Marginal benefit from a good or service is the benefit received from consuming ______. It is measured by the most that people are willing to pay for ______. Marginal benefit from food crops _______.
one more unit of it; an additional unit of it cannot be calculated from the table
hw4. In 2011, Ozzie purchased a 2008 Ford Escort from his neighbor for his son, purchased a 2007 "one owner" Camry from Larchmont Toyota for his wife, bought a 2011 new Ford for himself, and sold his 2000 Dodge Caravan to his teenage nephew. Which, if any, of these transactions will be included in GDP in 2011?
only the purchase of the Ford
PT5. If the CPI rises from 120 to 126, then ______.
on average, the price paid by urban consumers for a fixed basket of consumer goods and services rises by 5 percent
DSM8. The Fed conducts monetary policy primarily through __________.
open market operations
mt2. To increase the money supply, the Fed may conduct
open market sales or decrease the discount rate
T91. The private sector balance and the government sector balance tend to move in ______. Net exports respond ______.
opposite directions; to the sum of the government sector and private sector balances
P9. The U.S. dollar exchange rate fluctuates in part because a change in the U.S. interest rate differential changes the demand for U.S. dollars and the supply of U.S. dollars in ______ and a change in the expected future exchange rate changes the demand for U.S. dollars and the supply of U.S. dollars in ______.
opposite directions; opposite directions
ceteris paribus
other things being equal - all other relevant things remaining the same
law of demand
other things remaining the same, the higher the price of a good, the smaller is the quantity demanded of it; the lower the price of a good, the larger the quantity demanded inverse relationship P:^ so Qd: v P: v so Qd: ^
law of supply
other things remaining the same; the higher the price of a good, the greater is the quantity supplied of it. the lower the price of a good, the smaller the quantity supplied of it. direct relationship
scarcity
our inability to satisfy all our wants
PQ13. The federal budget is an annual statement of the _____ of the government of the United States together with the laws and regulations that approve and support them.
outlays and receipts
hw2. Unattainable points are ______.
outside the PPF
DSM5. Many economists believe the CPI __________ inflation because it fails to consider quality improvements in products.
overstates
hw8. Rapid inflation in Brazil in the early 1990s caused the cruzerio to lose its ability to function as money. Which of the following commodities do you think would most likely have taken the place of the cruzeiro in the Brazilian economy?
packs of cigarettes because they are a good medium of exchange
hw3. The equilibrium price is the best deal available for both buyers and sellers because buyers ______ and sellers ______.
pay the highest price they are willing to pay; receive the lowest price at which they are willing to sell
export subsidy
payment by the government to a subsidy to the producer of an exported good so it increases the supply of exports
hw5. Unemployment arises for all of the following reasons except ______. Some unemployment is unavoidable because ______.
people leave the labor force people are making transitions through the stages of life and businesses are making transitions
mt2. Unemployment arises for all of the following reasons except ______. Some unemployment is unavoidable because ______.
people leave the labor force people are making transitions through the stages of life and businesses are making transitions
employment to population ratio
percentage of people of working age who have jobs
mt2. Depository institutions balance risk and return by _______.
placing some funds into safe low interest-earning assets and other funds into high-interest risky assets
exchange rate
price at which one currency exchanges for another in the foreign exchange market
equilibrium price
price at which the quantity demanded equals the quantity supplied Qd = Qs
P12. The combination of a rising _____ and decreasing _____ is called stagflation.
price level; real GDP
DSM2. Absolute advantage is the ability of an individual, firm, or country to:
produce more of a good or service than competitors using the same amount of resources
mt1. A substitute in production is a good that is _____ another good, and a complement in production is a good that is _____ another good.
produced in place of; produced together with
hw2. Harry produces 9 balloon rides and 2 boat rides an hour. Harry could not produce more balloon rides without producing fewer boat rides. Harry is ______ his production possibilities frontier.
producing on
hw2. What kind of efficiency do we achieve when we produce goods and services at the lowest possible cost?
production
PQ13. Fiscal Stimulus is the use of fiscal policy to increase _____.
production and employment
factors of production
productive resources used to produce goods and services
P12. The newest theory of the business cycle, known as real business cycle theory (or RBC theory), regards random fluctuations in _____ as the main source of economic fluctuations.
productivity
consumption function
relationship between consumption expenditure and disposable income, other things remaining the same
demand for loanable funds
relationship between the quantity of loanable funds demanded and the real interest rate when all other influences on borrowing plans remain the same
laffer curve
relationship between the tax rate and the amount of tax revenue collected
12. A Phillips curve is a curve showing the __________.
relationship between the unemployment rate and the inflation rate
Positive relationship
relationship between two variables that move in the same direction
DSM3. In a price system:
relative prices change constantly to reflect changes in supply and demand.
DSM8. The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits at the Fed, is __________.
required reserves
efficient
resource use is efficient if it's not possible to make someone else worse off
P9. In January 2010, the exchange rate was 91 yen per U.S. dollar. By September 2010, the exchange rate had fallenfallen to 84 yen per U.S. dollar. As the exchange rate falls, the prices of foreign-produced goods and services to Americans ______ and the volume of U.S. imports ______.
ride; decreases
12. In a demand-pull inflation, the AD curve shifts ____ and the SAS curve shifts ____.
rightward; leftward
9. When the real exchange rate decreases, a country's net exports will __________.
rise
PT8. On average in the United States, the inflation rate and the money growth rate minus the real GDP growth rate ______.
rise and fall together
P12. Stagflation is a combination of a ______ in the price level and ______ in real GDP. Stagflation occurs when _______.
rise; a decrease costs increase
P9. In June 2011, the exchange rate was 0.69 euros per U.S. dollar. By June 2012, the exchange rate had risenrisen to 0.79 euros per U.S. dollar. As the exchange rate rises, prices of U.S.-produced goods and services to foreigners ______ and the volume of U.S. exports ______.
rise; decreases
mt3. As the price level rises, interest rates _____ and real wealth ______. People substitute goods in the _____ for goods in the ______. So, as the price level rises, there is ______.
rise; decreases; future; present; a decrease in the quantity of real GDP demanded
PT5. According to classical growth theory, when real GDP per person ______, the population grows.
rises above the subsistence level
P12. The government of Shell Island announces an increase in spending of $50 billion a year and the central bank will increase the quantity of money to pay for the spending. Does the economy go into a boom? Will there be inflation? The economy _____ into a boom, real GDP _____ billion, and _____ arises.
rises to 130; increases to $625; a one-time change in the price level and has an inflationary gap
P12. Tight Money Won't Slay Food, Energy Inflation- Read the news clip, then answer the following question. Choose the correct statement.
"Slowing growth" can reduce inflationary pressure if aggregate demand growth slows.
mt3. Tight Money Won't Slay Food, Energy Inflation- Read the news clip, then answer the following question. Choose the correct statement.
"Slowing growth" can reduce inflationary pressure if aggregate demand growth slows.
P132. Potential GDP is $10 trillion and actual real GDP is $8 trillion. The economy has a structural deficit of $1.5 trillion and an actual deficit of $2 trillion. The cyclical deficit is ______.
$0.5 trillion
P9. You can purchase a laptop in Tokyo for 88,000 Japanese yen If the exchange rate is 80.00 Japanese yen per U.S. dollar and if purchasing power parity prevails, at what price can you buy an identical computer in Dallas, Texas?
$1,100
DSM8. Suppose that velocity of circulation is 3 and the quantity of money is $500 million. According to the quantity theory of money, GDP equals __________.
$1.5 billion
DSM7. If the inflation rate is 6 percent and the nominal rate of interest is 4 percent, then the real interest rate is __________.
-2 percent
PT7. Rob takes a summer job with a landscaping firm. During the summer, he earns an after-tax income of $4,500 and he spends $2,500 on living expenses. Everything else remaining the same, what was the change in Rob's wealth during the summer?
$2000
P111. Y C I G X M (trillions of 2009 dollars) 1.0 1.00 0.40.4 0.60.6 0.300.30 0.300.30 2.0 1.65 0.40.4 0.60.6 0.300.30 0.450.45 3.0 2.30 0.40.4 0.60.6 0.300.30 0.600.60 4.0 2.95 0.40.4 0.60.6 0.300.30 0.750.75 5.0 3.60 0.40.4 0.60.6 0.300.30 0.900.90 6.0 4.25 0.40.4 0.60.6 0.300.30 1.05 The table gives the aggregate expenditure schedule. Equilibrium expenditure is equal to _______.
$3 trillion
hw4. An economy produces only digital cameras, chocolate bars, and watches The table gives the quantities produced and prices in 2013 and 2014. The base year is 2013. What is real GDP in 2014 in terms of the base-year prices? Real GDP in 2014 in terms of base-year prices is ___
$30
PT8. In an economy, there is $175 million in currency held outside banks, $75 million in traveler's checks, $225 million in currency held inside the banks, $100 million in checking deposits, $400400 million in savings deposits, $2 comma 0002,000 million in time deposits, and $1 comma 0001,000 million in money market mutual funds and other deposits. The value of M1 is ______ and the value of M2 is ______.
$350 million, $3750 million
PQ13. If tax revenues are $3,500 billion and the government's budget balance is a $720 billion deficit, calculate the government's outlays.
$4,220
DSM5. If the CPI was 207 in 2007 and 225 in 2011, what pay raise would someone who earned $50,000 in income in 2007 have to receive in order to keep her purchasing power constant in 2011?
$4,348
PQ13. In June 2014, ______ of U.S. government debt was held by the rest of the world.
$5.8 trillion
DSM4. The U.S. GDP per capita in 2013 was approximately __________.
$50,000
mt2. On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $14,000, and at the end of the year the market value of all of Sophie's beds was $25,000. What was Sophie's net investment? Sophie's net investment during 2014 was $______.
$5000
hw3. Price (dollars per download) Quantity demanded Quantity supplied (movie downloads per day) 1.50 750 450 3.00 700 550 4.50 650 650 6.00 600 750 7.50 550 850 9.00 500 950 Suppose that demand increases by 100 downloads a day and supply decreases by 50 downloads a day. What is the new equilibrium price of a movie download and what is the new equilibrium quantity of movie downloads?
$6 700
PQ13. The estimated U.S. fiscal imbalance in 2014 was ______. The current generation will pay ______ percent and future generations will pay ______ percent of the fiscal imbalance.
$68 trillion 83; 17
PT7. On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $8,000. At the end of the year, the market value of all of Sophie's beds was $26,000. Calculate Sophie's gross investment and depreciation during 2014. Sophie's gross investment during 2014 was _____. Sophie's depreciation during 2014 was _____.
$8,000 $2,000
P9. Net exports equals ______. If the government sector deficit increases, with no change in the private sector surplus, net exports ______.
(T − G) + (S − I) decrease
T91. Government expenditures 750 Net taxes 500 Investment 500 Saving 200 The table gives some items from the national income and product accounts. Calculate the government sector balance, the private sector balance, and net exports
-250 -300 -550
DSM5. Suppose the CPI in 2008 was 215.3 and the CPI in 2009 was 214.6, what was the inflation rate between 2008 and 2009?
-0.3 percent
P9. The U.K. pound is trading at 1.50 U.S. dollars per U.K. pound. There is purchasing power parity at this exchange rate. The interest rate in the United States is 1 percent a year and the interest rate in the United Kingdom is 1.5 percent a year. What is the U.S. interest rate differential? What is the U.K. pound expected to be worth in terms of U.S. dollars one year from now? The U.S. interest rate differential is ______ percent. A year from now, the U.K. pound is expected to _____ Which country more likely has the lower inflation rate?
-0.5 depreciate by .5 percent United States
P121. If the trend rate of change of velocity is 1 percent a year, potential GDP grows by 4 percent a year, and the money growth rate is 2 percent a year, what is the trend inflation rate?
-1 percent a year
T111, The marginal propensity to consume is 0.8, the marginal tax rate is 0.25, and the marginal propensity to import is 0.2. The autonomous tax multiplier is _______.
-1.33
T112. The marginal propensity to consume is 0.8, the marginal tax rate is 0.20, and the marginal propensity to import is 0.14. The autonomous tax multiplier is _______.
-1.6
P111. An economy with no income taxes or imports has a marginal propensity to consume of 0.75. The multiplier in the long run is _______.
0
mt3. An economy with no income taxes or imports has a marginal propensity to consume of 0.75. The multiplier in the long run is _______.
0
P112. Disposable income Consumption expenditure (millions of 2009 dollars) 0 40 100 100 200 160 300 220 The table gives you information about the economy of Bluejay Island. What is the marginal propensity to save?
0.40
P9. If the US interest rate is 1.5 percent, Canada's interest rate is 1 percent, the US inflation rate is 1.2 percent, and Canada's inflation rate is 0.70 percent, then calculate the US interest rate differential.
0.5
P11. If equilibrium expenditure changes by $50 billion that results from an increase in autonomous taxes by $80 billion, find the autonomous tax multiplier.
0.625
mt3. If equilibrium expenditure changes by $50 billion that results from an increase in autonomous taxes by $80 billion, find the autonomous tax multiplier.
0.625
P111. Disposable income Consumption expenditure (millions of 2009 dollars) 0 60 100 140 200 220 300 300 The table gives you information about the economy of Bluebird Island. What is the marginal propensity to consume?
0.8
9. If the dollar price of a euro is $1.25, then the euro price of the dollar is __________.
0.80 euros
P9. The price level in the Eurozone is 111.2, the price level in the United States is 109.1, and the nominal exchange rate is 0.85 euros per U.S. dollar. What is the real exchange rate expressed as Eurozone real GDP per unit of U.S. real GDP?
0.83
hw2. The graph shows the marginal cost of producing cookies and the marginal benefit from cookies in Oakdale. Oakdale achieves allocative efficiency if _______.
6 batches of cookies an hour are produced
hw6. 1. The news article reports that China is the second largest economy in the world based on ______. 2. Choose the statement that is incorrect. 3. In a standard of living comparison, China ranks ______ in the world. This rank is ______. 4. Choose the statement that is incorrect. 5. Using PPP prices, China's ranks as the world's number ___ economy in 2010. 6. Using PPP prices, China's standard of living in 2010 is _____. 7. Choose the statement that is incorrect.
1. GDP converted to U.S. dollars at the current exchange rate 2. A country with a large population cannot have a high standard of living. 3. 105th; rising because physical capital and human capital growth and technological change are proceeding rapidly and China's real GDP is growing 4. Comparisons of real GDP between countries are most accurate when we use market prices. 5. 1 6. 11000 7. The size of an economy is irrelevant.
hw5. 2015-237.8 2016-240.4 2017-245.0 Calculate the inflation rates for the years ended August 2016 and August 2017. The inflation rate in the year ended August 2016 was ___ percent per year. The inflation rate in the year ended August 2017 was ___ percent per year. How did the inflation rate change in the year ended August 2017August 2017? The inflation rate _____ .
1.1 1.9 increased
P9. The U.S. dollar exchange rate increased from $0.96 Canadian in June 2011 to $1.031.03 Canadian in June 2012, and it decreased from 81 Japanese yenJapanese yen in June 2011 to 78 Japanese yen in June 2012. In June 2011, the value of the Canadian dollar was $_____ US In June 2012, the value of the Canadian dollar was $ _____ US The Canadian dollar ________ against the U.S. dollar between June 2011 and June 2012.
1.04 0.97 Depreciated
hw2. The table below shows the maximum output of wine and cloth that England and Portugal can produce under constant cost conditions. WINE CLOTH ENGLAND 150 140 PORTUGAL 110 70 What is the lowest possible price England will sell cloth for? (Answer to two places after the decimal.) What is the highest possible price Portugal will pay for cloth?
1.07 1.57
DSM8. How many Federal Reserve districts are there?
12
T112.An economy has a consumption function of C = 10 + 0.8Y, investment of 6, government expenditure of 10, exports of 10, and an import function of M = 0.1Y. What is equilibrium real GDP?
120
hw5. In 2013 and in 2014, consumers in Dexter consumed only books and pens. The prices and quantities for 2013 and 2014 are listed in the table. The reference base period for Dexter's CPI is 2013 and 2013 is also the year of the Consumer Expenditure Survey. The CPI in 2014 is ______.
131.1
PT5. Labor Market Data Working-age population 212.6 million Labor force 142.6 million Unemployed 5.7 million The table gives information about the U.S. labor market in 2000. What is the number of people employed? The number of people employed is ____ million.
136.9
hw2. The graph shows Brazil's PPF for ethanol and food crops. If Brazil increases production of food crops from 2 tons per day to 3 tons per day, the opportunity cost of the additional ton of food crops is _____ barrels of ethanol. If Brazil increases production of ethanol from 40 barrels per day to 54 barrels per day, the opportunity cost of the additional 14 barrels of ethanol is ______ of food crops. The opportunity cost of producing an additional ton of food crops is equal to ______.
14 1 ton the inverse of the opportunity cost of producing an additional barrel of ethanol
DSM6. If a country's real GDP is growing at a rate of 5 percent per year, how long will it take for the real GDP to double?
14 years
mt2. Labor Market Data Number In October 2014 Employed 18,000 Unemployed 3,000 Not in labor force 6,000 During November 2014 Lost jobs and didn't look for new jobs 80 Quit jobs and retired 20 Unemployed who were hired 100 Left the labor force 30 Entered the labor force to look for work 30 The table gives information about the labor market in October 2014 in the economy of Sandy Island. What is the unemployment rate and the employment-to- population ratio in October 2014? Calculate the number of people unemployed, the number employed, and the unemployment rate at the end of November 2014. In October 2014: The unemployment rate is ____ percent. The employment-to-population ratio is _____ percent. At the end of November 2014: The number of people unemployed is _______. The number of people employed is _________. The unemployment rate is ______ percent.
14.3 66.7 2,900 18,000 13.9
PT5. The CPI in 2013 is 120 and the CPI in 2014 is 138.0. The inflation rate in 2014 is ____. The inflation rate in 2014 ______.
15.0 percent might be higher, lower, or the same as 2013.
DSM5. If the cost of a market basket of goods in 1992, the base year, is $200, and the cost of the same market basket is $300 in 2008, what is the CPI in 2008?
150
T112. An economy has a consumption function of C = 10 + 0.8Y, investment of 6, government expenditure of 10, exports of 10, and an import function of M = 0.1Y. If government expenditure increases to 15, what is the increase in equilibrium expenditure?
16.65
mt1. The figure shows the flows of expenditure and income in Europa. In 2011, flow A was $775 billion, C was $175 billion, B was $388 billion, and E was $44 billion. Calculate investment. In 20112011, investment is $ _____.
168 billion
mt2. If the annual interest paid on a $500 loan is $25, the nominal interest rate is _____ percent per year. If the nominal interest rate is 5 percent per year and the inflation rate is 2 percent a year, the real interest rate is _____ per year.
5;3
PT5. The people who live on Second Life Island consume only juice and cloth. Last year, which was the CPI base year, the price of juice was $3 a bottle, the price of cloth was $6 a length, and the average urban household spent $27 on juice and $42 on cloth. This year, the price of juice is $9 a bottle and the price of cloth is $7 a length. What is the CPI in the current year? The CPI in the current year is ____.
188.4
hw5. Jobless Rate Soars to 6.1%-The unemployment rate peaked ______ after the 2001 recession. During the 2002-2008 recession, the unemployment rate reached its lowest point at the beginning of ______. The expansion of 2002-2008 created jobs at ______ rate. The first two years of the expansion created few jobs because ______. The slow job growth and rise in unemployment after mid-2007 is most likely ______. Choose the statement that is incorrect.
18 months; 2007 an unusually slow; the expansion was very weak, so employment growth was weak cyclical The U.S. government cannot create jobs. Jobs are created by the private sector.
PT7. Year Wealth Saving (billions of dollars) 1995 27,700 308 1996 29,713 272 1997 32,854 248 The table provides official estimates of U.S. wealth and U.S. saving in three years. The change in U.S. wealth exceeds U.S. saving in ______. U.S. saving exceeds the change in U.S. wealth in ______.
1996 and 1997; none of the years in the table
T111. An economy has a consumption function of C = 15 + 0.7Y, investment of 8, government expenditure of 12, exports of 20, and an import function of M = 0.2Y. What is the multiplier for this economy?
2
T92. Choose the correct statements. 1. Foreign currency is always in the form of notes or coins. 2. The foreign exchange market is made up of thousands of people comma including international tourists and foreignThe foreign exchange market is made up of thousands of people, including international tourists and foreign exchange brokers.exchange brokers. 3. The foreign exchange market is the market in which the currencyThe foreign exchange market is the market in which the currency of one country is exchanged for the currency another.of one country is exchanged for the currency another. 4. The foreign exchange market is a place.
2 and 3
mt1. Hours Open Total Revenue (dollars) 1 $40 2 65 3 80 4 90 5 95 6 98 Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of hours the tailor shop is open as shown in the table to the right. He would have to hire a worker for those hours at a wage rate of $18 per hour. Using marginal analysis, determine how many hours should Julius extend his shop's hours of operations?
2 hours
P112. In an economy without taxes and imports, an increase in investment of $50 billion increases equilibrium expenditure by $125 billion. What are the values of the multiplier and the slope of the AE curve?
2.5 0.6
T111. An economy has a consumption function of C = 15 + 0.7Y, investment of 8, government expenditure of 12, exports of 20, and an import function of M = 0.2Y. If government expenditure increases by 10, what is the increase in equilibrium expenditure?
20
T112. The marginal propensity to consume is 0.8, the marginal tax rate is 0.20, and the marginal propensity to import is 0.14. The government increases government expenditure and autonomous taxes each by $50 billion. What is the resulting change in equilibrium expenditure?
20
mt2. 1. To keep pace with a growing population, approximately _______ jobs must be created each month. 2. Normally when the pace of job creation exceeds the increase in population, the unemployment rate _______. 3. When the pace of job creation exceeds the increase in population, the unemployment rate sometimes increases because _______. 4. We would expect the labor force participation rate to _______ in response to job creation in excess of population growth. 5. We would expect an increase in the growth rate of real GDP to _______ jobs and _______ unemployment.
20,000 falls discouraged workers return to the labor force increase increase; decrease
mt1. At which levels of production is Alice producing inefficiently?
200 units of lemonade and 50 units of pizza
PT7. Cindy takes a summer job painting houses. During the summer, she earns an after-tax income of $3,000 and she spends $1,000 on living expenses. What was Cindy's saving during the summer? Cindy's saving during the summer was $_____.
2000
hw6. Suppose that in 2014 China's real GDP is growing at 10 percent a year and its population is growing at 3.0 percent a year. If these growth rates continue, then China's real GDP per person in ______ will be twice what it is in 2014.
2024
P111. An economy has no imports and no taxes. The marginal propensity to save is 0.4. A ______ increase in autonomous expenditure increases equilibrium expenditure by $60 billion. The multiplier is ______.
24 billion; 2.50
T92. Item Billions of dollars Imports of goods and services 437 Foreign investment in CanadaCanada 62 Exports of goods and services 491 CanadianCanadian investment abroad 88 Net interest income −50 Net transfers 25 Statistical discrepancy −6 The table shows the balance of payments accounts in CanadaCanada in2004. What is CanadaCanada's current account balance, capital and financial account balance, and official settlements account balance?
29 -32 3
PT8. Suppose that potential GDP and the velocity of circulation are constant. What is the change in the price level in the long run if the quantity of money increases by 3 percent a year? If the quantity of money increases by 3 percent a year, in the long run the change in the price level is __ percent a year.
3
hw8. Suppose an increase in the monetary base of $100,000 increases the quantity of money by $300,000. Calculate the money multiplier. The money multiplier is ___
3
P111. The table gives the elements of planned expenditure. Real GDP Consumption expenditure Investment Government expenditure Exports Imports (trillions of 2009 dollars) 0 0.30.3 0.40.4 0.30.3 0.60.6 0 55 2.12.1 0.40.4 0.30.3 0.60.6 0.40.4 When real GDP is $5 trillion, what are aggregate planned expenditure, autonomous expenditure, and induced expenditure?
3.0 1.6 1.4
T112. An economy has a consumption function of C = 10 + 0.8Y, investment of 6, government expenditure of 10, exports of 10, and an import function of M = 0.1Y. What is the multiplier for this economy?
3.33
mt3. An economy has a consumption function of C = 10 + 0.8Y, investment of 6, government expenditure of 10, exports of 10, and an import function of M = 0.1Y. What is the multiplier for this economy?
3.33
P12. An economy is at potential GDP and the price level is 100 in the figure. If aggregate demand unexpectedly increases, the inflation rate is ______.
33 percent a year
T111. The marginal propensity to consume is 0.8, the marginal tax rate is 0.25, and the marginal propensity to import is 0.2. The government raises autonomous taxes and government expenditure by $100 million each. The resulting change in equilibrium expenditure is _______.
33.3
PT5. In 2013 and in 2014, consumers in Dexter consumed only books and pens. Books $3 5 $7 6 Pens $8 4 $7 9 The prices and quantities for 2013 and 2014 are listed in the table. The reference base period for Dexter's CPI is 2013, and 2013 is also the year of the Consumer Expenditure Survey. The inflation rate in 2014 is ______ percent.
34.0
11. The graph shows an economy that has no taxes or imports. AD0 is the aggregate demand curve when investment is $1.0 trillion, and AD1 is the aggregate demand curve when investment is $1.5 trillion. What is the size of the multiplier in the short run? The size of the multiplier in the short run is
4
P111. The graph shows an economy that has no taxes or imports. AD0 is the aggregate demand curve when investment is $1.0 trillion, and AD1 is the aggregate demand curve when investment is $1.5 trillion. What is the size of the multiplier in the short run?
4
P12. Suppose that the velocity of circulation of money is constant and real GDP is growing at a constant 3 percent a year. To achieve an inflation target of 1 percent a year, the central bank grows the quantity of money at ____ percent a year. Deflation will be created if the growth rate of the quantity of money is _______.
4 less than 3 percent a year
hw3. The money price of a box of ramen noodles is $0.20 and the money price of a tube of toothpaste is $0.80. The opportunity cost of a tube of toothpaste is _______. The relative price of a tube of toothpaste is an opportunity cost because ______.
4.00 boxes of ramen noodles, which is the relative price of a tube of toothpaste the relative price tells us how many boxes of ramen noodles we must give up to get a tube of toothpaste
hw4. The Bureau of Labor Statistics reported the following data for August 2017August 2017. Labor force 160,571 Employed 153,439 Working-age population 255,357 Use the above data to calculate for August 2017August 2017: >>> Answer each to one decimal place. Unemployment rate Labor force participation rate Employment to population ratio
4.4 Percent 62.9 Percent 60.1 Percent
mt2. The bank plans to hold $55 for every $100 in deposits. The bank holds desired reservesdesired reserves of $14,000 and actual reservesactual reserves of $22,000. What is the bank's desired reserve ratio and its excess reservesexcess reserves?
5 percent $8000
PT7. On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $10,000, and at the end of the year the market value of all of Sophie's beds was $25,000. What was Sophie's net investment? Sophie's net investment during 2014 was $_____.
5,000
PT5. 1. 34 million people had full-time jobs 2. 13 million people had part-time jobs 3. 8 million people were without work but were available for work and had made specific efforts to find a job within the past four weeks or were waiting to be recalled from a layoff or had a new job to start within the next 30 days 4. 6 million part-time workers were looking for full-time jobs 5. 34 million people of working age did not have jobs and did not want jobs The Population Survey in Blogsville for the past month is given in the table: In Blogsville last month, ______ million people were in the labor force and ______ million people were in the working-age population.
55; 89
PT5. Labor Market Data Working-age population 243.3 million Labor force 155.0 million Unemployed 12.5 million The table gives information about the U.S. labor market in 2012. What is the employment-to-population ratio? The employment-to-population ratio is ___ percent.
58.6
PT5. Year Real GDP (trillions of dollarstrillions of dollars) Population (billions) 2007 20,000 100 2008 21,424 103 The table provides some data on real GDP and the population of Atlantis in 2007 and 2008. What was the growth rate of real GDP in Atlantis in 2008? What was the growth rate of real GDP per person in Atlantis in 2008? The growth rate of real GDP in AtlantisAtlantis in 2008 is ___ percent. The growth rate of real GDP per person in AtlantisAtlantis in2008 was ___ percent.
7 4
PT6. Year Real GDP (trillions of dollars) Population (billions) 2007 30,000 150 2008 32,240 155 The table provides some data on real GDP and the population of Pacifica in 2007 and 2008. What is the growth rate of real GDP in Pacifica in 2008? What is the growth rate of real GDP per person in Pacifica in 2008? The growth rate of real GDP in PacificaPacifica in 2008 is ____ percent. The growth rate of real GDP per person in Pacifica in 2008 is ___ percent.
7 5
DSM6. According to the rule of 70, if a nation's per capita real GDP doubled during the past 10 years, then its average annual rate of economic growth over that period was approximately __________.
7 percent
hw8. The bank plans to hold $8 for every $100 in deposits. The bank holds desired reserves of $5,000 and actual reserves of $11,000. What is the bank's desired reserve ratio and its excess reserves? The bank's desired reserve ratio is ____ percent. The banks excess reservesexcess reserves are $_____.
8.0 6000
PT5. Item Millions Labor force 155 Employment 142 Working-age population 243 The table gives information reported by the Bureau of Labor Statistics for May, 2012. What is the unemployment rate? The unemployment rate is ____ percent.
8.4
PT5. Labor Market Data Working-age population 239.6 million Labor force 153.6 million UnemployedUnemployed 13.7 million The table gives information about the U.S. labor market in 2011. What is the unemployment rate? The unemployment rate is ____ percent.
8.9
mt2. Labor Market Data Working dash age populationWorking-age population 235.8 million Labor forceLabor force 154.1 million UnemployedUnemployed 14.3 million The table gives information about the U.S. labor market in 2009. What is the number of people not in the labor force?
81.7
P9. The U.S. price level is 120, the Japanese price level is 97.4, and the real exchange rate is 103.6 Japanese real GDP per unit of U.S. real GDP. What is the nominal exchange rate?
84.09 yen per dollar
T92. Item Billions of dollars Imports of goods and services 950 Foreign investment in Plutonia 1,200 Exports of goods and services 1,500 Plutonian investments abroad 350 Net interest income 11 Net transfers −60 Statistical discrepancy −10 The table gives some information about international transactions in the country of Plutonia. What is the capital and financial account balance?
840
PT5. 2013 2014 Item Price Quantity Price Quantity Books $4 5 $5 8 Pens $6 6 $4 9 In 2013 and in 2014, consumers in Dexter consumed only books and pens. The prices and quantities for 2013 and 2014 are listed in the table. The reference base period for Dexter's CPI is 2013 and 2013 is also the year of the Consumer Expenditure Survey. The CPI in 2014 is ______.
87.5
PQ13. At the end of 2008, the government of Greece's debt was €199.0 billion. In 2009, the government spent €120.0 billion and ended the year with a debt of €230.0 billion. How much did the government receive in tax revenue in 2009?
89.0
9. If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 100 yen, the price level in the United States is 90 and the price level in Japan is 100, what is the real exchange rate?
90
10. Which of these factors will cause the aggregate demand curve to shift?
A change in the expectations of households and firms
P10. Consider the following events. Event 1: Growth in the world economy slows. Event 2: The world price of oil rises. Event 3: U.S. labor productivity declines. Choose the statement that is correct.
A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events.
DSM7. Which of these is a financial institution?
A commercial bank
T91. Choose the statement about a crawling peg that is incorrect.
A crawling peg makes the exchange rate fluctuate wildly.
PT7. Choose the statement that is incorrect.
A government budget surplus competes with investments for funds.
DSM7. What is the relationship between real interest rates and investment, other things being equal?
A negative relationship
DSM4. Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics?
A new house
DSM5. Which of these persons is officially unemployed?
A non-working individual who has looked for a job in the past week
12. In the real business cycle model, which of these best explains an increase in real GDP above the full-employment level?
A positive technology shock
DMS6. Which of these will cause the quantity of goods and services that can be produced by one worker, or in one hour of work, to increase?
A technological change
DSM3. Which of the following will cause an outward (rightward) shift in supply?
A technological improvement.
hw5. Choose the statement that is incorrect.
A wage contract linked to the CPI gives the workers less real income than the firm intended.
mt2. Choose the statement about money that is incorrect.
A work of art is an example of money because it can act as a store of value.
T112. An economy has a consumption function of C = 10 + 0.8Y, investment of 6, government expenditure of 10, exports of 10, and an import function of M = 0.1Y. What is the equation of the aggregate expenditure curve?
AE= 36 + 0.7Y
T111. The equation of the aggregate expenditure curve is given by _______.
AE= A + [b(1-t)-m]Y
T92. Choose the statement that is incorrect.
Against the Chinese Yuan, the dollar appreciated between 2005 and 2014.
mt1. Markets
All of the above answers are correct.
mt1. When the price is less than the equilibrium price,
All of the above answers are correct.
P132. Choose the statement that is incorrect.
An increase in government expenditure increases government borrowing (or decrease government lending if there is a budget surplus) and lowers the real interest rate.
mt1. Jeb makes the following four statements about peanuts. Which statement best describes his quantity demanded in the peanut market?
At a price of $1 per pack, I plan to buy 2 packs of peanuts per week.
hw4. ______ good is an item that is bought by its final user during a specified time period. ______ good is an item that is produced by one firm, bought by another firm, and used as a component of a final good or service.
A final; An intermediate
hw8. When the Fed buys securities from a bank, a sequence of events begins. The events are listed below. Number each event in the order in which it occurs.
Banks have excess reserves. Banks lend excess reserves. The quantity of money increases. New money is used to make payments. Some of the new money remains on deposit. Some of the new money is a currency drain. Desired reserves increase because deposits have increased. Excess reserves decrease.
DSM7. Which of these are financial instruments that represent promises to repay a fixed amount of funds?
Bonds
P132. Choose the statement about U.S. international debt that is incorrect.
Borrowing from the rest of the world as a source of loanable funds decreased during the late 1990s and 2000s
DSM5. Which of these factors can cause the natural rate of unemployment to change?
Demographic changes
mt1. Which of the following statements is true?
Both life-saving drugs and ice cream are examples of scarce goods.
DSM4. Which is the largest component of GDP?
Consumption
mt1. Economics promotes which of the following as the way to make the best decision?
Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.
P9. Imports of goods and services 1,250 Foreign investment in NordlandNordland 1,300 Exports of goods and services 1,250 Nordland's investment abroad 550 Net interest income 88 Net transfers −20 Statistical discrepancy −10 The table gives some information about Nordland's international transactions. Calculate the current account balance, the capital and financial account balance, and the official settlements account balance. Nordland's Official Reserves are ____ This nation is a _____
Current Account Balance: -12billion Capital and Financial Account Balance: 740 billion Official Settlements: -728 bilion Increasing Net borrower
E. Current Account
Current Account= (Exports-Imports) + Net Interest Income + Net Transfers
9. b. Did the events you've described change the demand for U.S. dollars, the supply of U.S. dollars, or both demand and supply in the foreign exchange market? Answer by typing D for demand, S for supply, or B for both demand and supply Change in world demand for U.S.exports Upper DD Change in U.S.import demand Upper SS Change in U.S. interest rate differential Upper BB Change in expected future exchange rate Upper BB
DD for Demand SS for Supply BB for Both
mt1. Which of the following is an example of a final good or service?
Dan bought a Toyota Camry.
mt1. If Dani and Emily devote equal amounts of time and effort to making pretzels, Dani produces more units than Emily. This information tells us that
Dani has an absolute advantage in producing pretzels
mt3. Which of the following fiscal policies combats inflation?
Decreasing government spending
DSM6. Which of these factors inhibit economic growth?
Discouraging international trade
P112. Planned saving + Planned consumption expenditure = ______.
Disposable income
mt3. A demand-pull rise in the price level will initially move the economy to point _______ and to point _______.
E when aggregate demand increases; D when money wage rate rises
T122. The figure shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the economy of Tomorrowland. The economy is currently at point A. A demand-pull rise in the price level will initially move the economy to point _______ and to point _______.
E when aggregate demand increases; D when the money wage rate rises.
mt2. Choose the statement that is incorrect.
Each additional hour of labor increases real GDP by successively larger amounts
PT6. Choose the statement that is incorrect.
Each additional hour of labor increases real GDP by successively larger amounts.
T122. Choose the statement about real business cycle theory that is incorrect.
Economists have not been able to isolate RBC impulse
9. Which of the following is a determinant of exchange rates?
Expected future exchange rate
PQ13. Senate Approves Obama Tax Cut Plan- Choose the statement that is incorrect. A same-sized decrease in taxes and increase in government expenditure ______ real GDP.
Extending the Bush-era tax cuts to everyone decreases the demand for loanable funds may increase, decrease, or not change
PQ13. The President submits a budget proposal to Congress in ______. After this date, Congress debates, amends, and enacts the budget until ______. Fiscal 2015 begins on ______ and supplementary budget laws for 2015 may be passed until fiscal 2015 ends on ______.
February 2014; October 1, 2015 October 1, 2014; September 30, 2015
DSM13 Which of the following statements about U.S. government receipts is correct?
Federal receipts have ranged between 15 and 20 percent of gross domestic product for the past few decades.
12. Which of the following shifts the aggregate demand curve rightward year after year?
Growth in the quantity of money
DSM2. In the circular flow model, who supplies factors of production in exchange for income?
Households
DSM5. Of the eight categories in the CPI market basket, which three categories make up more than 70% of the basket?
Housing, transportation, and food
DSM6. Which of these terms refers to the accumulated knowledge and skills workers acquire from education and training, or with life experiences?
Human capital
hw4. Which of the following is TRUE regarding real GDP? I. Real GDP is the value of the total production of the country's farms, factories, shops, and offices. II. Real GDP rises whenever inflation occurs. III. Real GDP does not measure all that is produced.
I and III
mt1. Which of the following statements describes a change in the quantity supplied and which describes a change in supply? I Farms are selling less chicken because the price of turkey has increased. II Farms are selling less chicken because the price of chicken has fallen. III Farms are selling more chicken because the price of chicken has risen. IV Farms are selling more chicken because the cost of chicken feed has fallen.
I and IV are changes in supply and II and III are changes in quantity supplied
DSM3. Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.
II and III
PT7. Choose the statement that is incorrect.
If a financial institution's net worth is positive, the institution must be solvent and liquid.
hw7. Choose the statement that is incorrect.
If a financial institution's net worth is positive, the institution must be solvent and liquid.
P9. Choose the correct statement about purchasing power parity.
If purchasing power parity does not prevail, the demand for U.S. dollars changes and the supply of U.S. dollars changes.
T92. Choose the statement about fixed exchange rates that is incorrect.
If the Fed wanted to fix the US dollar exchange rate with the Japanese Yen, the Fed would have to buy US dollars to prevent the exchange rate from rising above the target value.
DSM6. Which of these government policies can help economic growth?
Improving the quality of education
mt2. Lori is a student who teaches golf on Saturdays. In a year she earns $35,000 after paying her taxes. At the beginning of 2014, Lori owned $2,000 worth of books, CDs, and golf clubs and she had $6,000 in a savings account at the bank. During 2014, the interest on her savings account was $420 and she spent a total of $25,000 on consumption goods and services. There was no change in the market values of her books, CDs, and golf clubs. How much did Lori save in 2014 and what is her wealth at the end of 2014?
In 2014, Lorie saved $10,420 Lori's wealth at the end of 2014 is $18420
P102. Choose the statement about the business cycle that is incorrect.
In a business cycle, real GDP shows steady growth and steady inflation.
12. Choose the statement that is incorrect.
In a deflation, the inflation rate is positive but decreasing in consequent years.
P12. Choose the statement that is incorrect.
In a deflation, the inflation rate is positive but decreasing in consequent years.
PT5. Choose the statement that is incorrect.
In the United States in 2009, 22 million fewer people had jobs than in 1989.
T92. Choose the statement that is incorrect.
In the long run, the change in nominal exchange rate brings an equivalent change in the real exchange rate.
P9. Choose the statement that is incorrect.
In the long run, China manages its exchange rate to keep its export prices low and to make it easier to compete in world markets.
10. According to the graph, an increase in government spending, all else equal, will shift the AD curve from the initial AD curve to the curve labeled:
Increased AD
DSM4. Which of the following are not counted as final goods and used in the GDP calculation?
Intermediate goods
DSM4. Which of these is not a shortcoming of GDP as a measure of standard of living?
It only counts final goods and services and not intermediate goods.
mt1. The opportunity cost to produce 1 pretzel for James is 2 cookies. For Carolline, the opportunity cost to produce 1 pretzel is 3 cookies. From this information, we know that
James has a comparative advantage in pretzel production.
T91. If in the long run, the U.S. dollar appreciates against the Japanese yen, then ______.
Japan has created money at a faster pace than has the United States, and the price level in Japan has risen more rapidly than the U.S. price level
hw2. Martha can produce 60 quilts or 180 batches of chocolate chip cookies in a month. Jane can produce 9 quilts or 18 batches of chocolate chip cookies in a month. ________ has an absolute advantage in both goods. ______ has a comparative advantage in quilts. ______ has a comparative advantage in chocolate chip cookies.
Martha Jane; Martha
PT7. Choose the statement that is incorrect.
Most economists believe that the Ricardo-Barro Effect holds in the loanable funds market
P11. An economy has a fixed price level, no imports, and no income taxes. An increase in autonomous expenditure of $2 trillion increases equilibrium expenditure by $20 trillion. Calculate the multiplier and the marginal propensity to consume. The marginal propensity to consume is ____. If an income tax is introduced in this economy, the multiplier _______.
Multiplier: 10 0.90 decreases
P11. An economy has a fixed price level, no imports, and no income taxes. MPC is 0.8, and real GDP is $250 billion. Businesses increase investment by $10 billion. Calculate the multiplier and the change in real GDP.
Multiplier: 5 Change in Real GDP: 50 billion
DSM6. Which of these factors does not contribute to economic growth?
Nationalization of foreign investments
PT6. ______ sees the economy as a perpetual motion machine.
New Growth Theory
DSM6. The process by which competition for profits leads to technological progress and perpetual economic growth best fits which growth theory?
New growth theory
mt2. ______ sees the economy as a perpetual motion machine.
New growth theory
P11. An economy has a fixed price level, no imports, and no income taxes. MPC is 0.5, and real GDP is $150 billion. Businesses increase investment by $10 billion. Calculate the new level of real GDP and explain why real GDP increases by more than $10 billion. Real GDP increases by more than $10 billion because the increase in investment _______.
New level of Real GDP: 170 induces an increase in consumption expenditure
mt1. Norway and the U.S. each produce computers and cheese according to the following schedule: Computers Cheese United States 10,000 20,000 Norway 12,000 8,000 1. Which country has the absolute advantage in computers? 2. Which country has the absolute advantage in cheese? 3. Which country has the comparative advantage in computers? 4. Which country has the comparative advantage in cheese? 5. Comparative advantage is based on what kind of economic costs? 6. Which of the following statements best reflects this situation? 7. Who would be most likely to recommend to these two nations that they engage in trade? 8. In what product should Norway specialize? 9. In what product should the United States specialize? 10. What is the lowest acceptable price for computers? 11, What is the highest acceptable price for computers? 12. What is the lowest acceptable price for cheese? 13. What is the highest acceptable price for cheese?
Norway United States Norway United States Opportunity Costs Regardless of whether a country has one or two of the absolute advantages, both countries can benefit from trade. Almost all economists Norway should produce 12,000 computers. The US should produce 20,000 cheese. 2/3 cheese 2 cheese 1/2 computer 3/2 computers
E. Official Settlements
Official Settlements= -1* (Capital and Financial + Current Accounts)
DSM2. What is the name given to the highest-valued alternative that must be given up to engage in any activity?
Opportunity cost
mt1. Assume that the graphs in this figure represent the demand and supply curves for ramen noodles, an inferior good. Which panel describes what happens in this market as a result of an increase in income?
Panel (d)
PQ13. The source of the fiscal imbalance is ______. To meet its obligations, the federal government must consider four alternatives: ___income taxes. ___Social Security taxes. ____ Social Security benefits. ____ federal government discretionary spending.
Social Security pensions and Medicare benefits Raise Raise Cut Cut
PT5. Choose the statements concerning neoclassical growth theory that are true. 1. As incomes increase both the birth rate and the death rate decrease. 2. Technological change results from the choices people make in the pursuit of profit. 3. Neoclassical growth theory implies that growth rates and income levels per person around the globe will diverge. 4. Neoclassical growth theory is the proposition that real GDP per person grows because technological change induces a level of saving and investment that makes capital per hour of labor grow.
Statements 1 and 4 are correct.
mt3. Choose the correct statements. 1. The foreign exchange market is a place. 2. A rise in the exchange rate is called an appreciation of the dollar. 3. The exchange rate fluctuates. 4. A fall in the exchange rate is called a devaluation of the dollar.
Statements 2 and 3 are correct
hw5. Choose the correct statements. 1. The unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs is frictional unemployment. 2. The unemployment that arises from normal labor turnover is structural unemployment. 3. When a steel plant becomes more automated and workers lose their jobs comma the workers are structurally unemployed. 4. The unemployment that arises from normal labor turnover is frictional unemployment.
Statements 3 and 4 are correct
mt2. The Bureau of Labor Statistics reports six alternative measures of the unemployment rate. Choose the correct statements. a. U-4 adds discouraged workers to the official unemployment rate. b. U-5 adds all marginally attached workers to the official unemployment rate. c. U-3 adds discouraged workers to the official unemployment rate. d. U-4 is the official unemployment rate.
Statements a and b are correct.
hw2. Choose the correct statements. a. Opportunity cost of a good is the increase in the quantity produced of one good divided by the decrease in the quantity b. The opportunity cost of an action is the highest dash valued alternative forgone. c. Opportunity cost of a good is the decrease in the quantity produced of one good divided by the increase in the quantity d. Opportunity cost of a good cannot be accurately measured along a PPF because the PPF shows only two goods.
Statements b and c are correct.
hw5. Choose the statement about the Consumer Price Index that is incorrect. CPI = ______.
The CPI is defined to equal 1.00 for a period called the reference base period. (Cost of CPI basket at current-period prices ÷Cost of CPI basket at base-period prices) ×100
P10. Which of the following economies is facing a stagflation?
The European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level.
P10. Which of the following statements illustrate monetary policy?
The Fed has raised the federal funds rate by 0.3 percent.
DSM8. Which body of the Federal Reserve System sets the majority of U.S. monetary policy?
The Federal Open Market Committee
mt1. Which of the following is an example of government expenditure on goods and services?
The White House buying internet services.
10. Which of these factors will cause the long-run aggregate supply curve to shift to the right?
The accumulation of more machinery and equipment
DSM2. In his 1776 book, "An Inquiry into the Nature and Causes of the Wealth of Nations," Adam Smith notes that specialization increases productivity. Which of the following was the cause of this phenomenon?
The division of labor
PT5. Choose the statement that is incorrect.
The bias in the CPI decreases government outlays
PT7. How can the change in U.S. wealth differ from U.S. saving?
The change in wealth includes changes in the prices of assets owned and saving excludes these items.
hw7. How can the change in U.S. wealth differ from U.S. saving?
The change in wealth includes changes in the prices of assets owned and saving excludes these items.
PT6. Choose the statement that is incorrect.
The demand for labor is the relationship between the quantity of labor demanded and the money wage rate.
PT5. Choose the statement about growth in labor productivity that is incorrect.
The demand for labor increases, the production function does not change, but a movement occurs along the production function.
DSM7. If technological change increases the profitability of new investment to firms, which of these will occur?
The demand for loanable funds will increase.
P131. Choose the statement that is incorrect.
The demand-side effect of a tax cut are likely to be larger than an equivalent increase in government expenditure.
PT8. Choose the statement that is incorrect.
The deposits of commercial banks represent 69 percent of M1 and 45 percent of M2.
10. If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?
The eventual agreement by workers to accept lower wages
mt1. Russell studies instead of playing tennis. The opportunity cost to him of studying is
The forgone value of playing tennis.
mt2. Choose the statement that is incorrect.
The greater the default risk, the greater is the supply of loanable funds.
P10. Labor productivity is rising at a rapid rate in China and wages are rising at a similar rate. Choose the statement that is incorrect.
The increase in labor productivity has no effect on short-run aggregate supply.
hw5. Choose the correct statement. The CPI in 2006 was 201.6. The CPI in 2007 was 207.3. The inflation rate in 2007 was ___ percent.
The inflation rate is the annual percentage change in the price level. 2.8
T122. Choose the correct statement.
The long-run Phillips curve shifts rightward when the natural unemployment rises and leftward when natural employment falls
hw2. When most economists wake up in the morning, their first decision is whether or not to hit the snooze alarm. What statement best represents their thought process as a rational decision maker? (How does an economist approach analyzing a situation like this?)
The marginal benefit of sleeping 10 more minutes is greater than the marginal benefit of 10 more minutes of work
P111. The multiplier is greater than 1 because the change in autonomous expenditure leads to _______.
The multiplier is greater than 1 because the change in autonomous expenditure leads to _______.
hw8. Choose the statement about the Fed that is incorrect.
The policy decisions of the Federal Open Market Committee are implemented each month by a different Federal Reserve Bank.
PT6. Choose the statement that is incorrect.
The presence of a banking system in Britain in the middle 1700s started the Industrial Revolution.
mt2. Choose the statement that is incorrect.
The presence of a banking system in Britain in the middle 1700s started the Industrial Revolution.
10. The aggregate demand curve shows the relationship between:
The price level and the quantity of real GDP demanded
P121. Choose the statement that is incorrect.
The price level falls if aggregate supply increases at a persistently slower rate than aggregate demand.
DSM3. The market for corn is initially in equilibrium. Suppose that the production of biofuels, which use corn as an input, increase, and at the same time, increases in the price of oil cause farm production costs to rise. Which of the following explains the effect on equilibrium price and quantity in the corn market?
The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information.
DSM3. Washington state had a bumper apple crop this year, significantly increasing the supply of apples in the U.S. Given this information, choose the statement that correctly describes the effect on the U.S. apple market.
The quantity of apples demanded will increase as the price of apples falls.
mt1. Which of the following will hold true if the market for cameras is in equilibrium at a price of $40?
The quantity of cameras produced will equal the quantity of cameras bought in the market.
10. Choose the correct statement.
The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
P101. Choose the correct statement.
The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
PT6.Choose the statement that is incorrect.
The return of full employment in an expansion phase of the business cycle is economic growth.
DSM7. If the government begins running a budget surplus, what impact will the surplus have on the loanable funds market?
The supply of loanable funds will increase.
DSM7. How would a reduction in income tax rates affect the loanable funds market?
The supply of loanable funds would increase.
P132. Choose the statement that is incorrect.
The true tax rate on interest income is lower than that on labor income because of the way in which inflation and taxes on interest income interact.
DSM5. Which of these groups is included in the labor force?
The unemployed
Nominal GDP
The value of the final goods and services produced in a given year valued at the prices that prevailed in that same year. More precise name for GDP
PT5. Choose the statement that is incorrect.
The unemployment rate includes all underutilized labor.
DSM7. Which of these determines the supply of loanable funds?
The willingness of households and governments to save
mt3. Choose the statement about flexible exchange rates that is incorrect.
The world economy has operated a flexible exchange rate regime since the end of World War II.
T91. Choose the statement about flexible exchange rates that is incorrect
The world economy has operated a flexible exchange rate since WWII
DSM13 What happens when government spending is greater than government tax revenues?
There is borrowing by the government and the government debt rises.
PQ13. Choose the statement that is incorrect. The _____ the interest rate, the greater is the present value of a given future amount.
There is no uncertainty about which interest rate to use to calculate the present value of the government's debts to older Americans in the form of pensions and medical benefits. lower
mt1. Which of the following best describes an assumption economists make about human behavior?
They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.
P9. Choose the statement that is incorrect.
The "Mexican peso is gaining on the greenback" because the demand for pesos is increasing at a slower pace than the supply of pesos is increasing.
DSM5. Which of these are included in the labor force?
Those who are employed and those who are unemployed
P10. Geithner Urges Action on Economy- Choose the statement that is incorrect.
Treasury Secretary Timothy Geithner most likely follows the monetarist school of thought if he thinks that a falling money wage rate will respond quickly to changes in government tax policy.
mt3. Geithner Urges Action on Economy- Read the news clip, then answer the following question. Choose the statement that is incorrect..
Treasury Secretary Timothy Geithner most likely follows the monetarist school of thought if he thinks that a falling money wage rate will respond quickly to changes in government tax policy.
P9. Choose the statement that is incorrect.
Trends around which the exchange rate fluctuates are impossible to predict.
mt3. Choose the statement that is incorrect.
Trends around which the exchange rate fluctuates are impossible to predict.
E.U.S. Interest Rate Differential
U.S. Interest Rate Differential= US Interest Rate - Foreign Interest Rate
mt3. Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand in the United States. U.S. exports in the European Union boom. U.S. firms build new gas-fuel utilities. The U.S. inflation rate is expected to rise next year. The U.S. price level rises.
U.S. aggregate demand increases U.S. aggregate demand increases U.S. aggregate demand increases. The quantity of U.S.real GDP demanded decreases.
mt1. Toyota and Honda Shift Production to North America- The decision by Toyota and Honda to build more cars in the United States influences the factor incomes that make up U.S. GDP by increasing ______.
U.S. compensation of employees and other factor incomes
P9. The real exchange rate is the relative price of _____ to _____.
U.S.-produced goods and services; foreign-produced goods and services
DSM3. Which of the following represents an inferior good?
When consumer income increases, the demand for bologna decreases.
P131. Choose the statement that is incorrect.
When full employment returns in 2018, the CBO says that that cyclical deficit will continue to be large
DSM8. When is the opportunity cost of holding money higher?
When interest rates are high
P131. Choose the statement that is incorrect.
When real GDP decreases in a recession, the poor become poorer, but at the same time the rich become richer and tax revenues increase.
DSM2. You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor can, which of the following is true?
You have a comparative advantage in picking apples.
mt1. ______ is an example of U.S. consumption expenditure.
Your purchase of a coffee from Starbucks
hw4. ______ is an example of U.S. consumption expenditure.
Your purchase of a tire for your car
offshore outsourcing
a U.S. firm buys finished goods, components, or services from firms in other countries
excess reserves
a bank's actual reserves minus its desired reserves actual - desired
central bank
a bank's bank and a public authority that regulates the nation's depository institutions and conducts monetary policy, which means it adjusts the quantity of money in circulation and influences interest rates
reserves
a banks reserves consist of notes and coins in its vaults plus its deposit at the Federal Reserve System
10. If an economy is at a full-employment equilibrium and a decrease in consumption expenditure occurs, the new short-run equilibrium is _____ and _____ gap emerges.
a below full-employment equilibrium; a recessionary
expansion
a business cycle phase between a trough and a peak - a period in which real GDP increases
recession
a business cycle phase in which real GDP decreases for at least 2 successive quarters
PQ13. The tax wedge is the gap created by a tax between what _____ and what _____.
a buyer pays; a seller receives
DSM7. A share of stock is __________.
a certificate of ownership and claim to the firm's profits
stock
a certificate of ownership and claim to the firm's profits
change in demand
a change in BUYERS' plans that occurs when some influence on those plans other than the price of the good changes. It's illustrated by a SHIFT of the demand curve
change in the quantity demanded
a change in BUYERS' plans that occurs when the price of a good changes but all other influences on buyers' plans remain unchanged. illustrated by movement ALONG the demand curve
change in supply
a change in SELLERS' plans that occurs when some influence on those plans other than the price of the good changes. It's illustrated by a SHIFT of the supply curve
PQ13. Fiscal Stimulus for Growth- Increased government spending on infrastructure results in all of the following except _______. Increased government spending on infrastructure ______. If the government of China froze its current spending and instead cut taxes, investment would ______ and jobs would ______.
a decrease in the real interest rate increases or decreases the number of jobs but we don't know for sure increase; increase
P12. A cost-push inflation begins with ______ as the result of an increase in the money wage rate or an increase in the money prices of raw materials.
a decrease in short-run aggregate supply
DSM5. Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as __________.
a discouraged worker
mt1. A changes in which of the following shifts the demand curve for hamburgers?
a fall in the price of french fries, a complement for hamburgers
mt1. Classify each of the following items as a final good or an intermediate good, and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services: Item 1. A new limousine for the president Item 2. Banking services bought by Google Item 3. A new coffee grinder bought by Starbucks Item 4. A textbook bought by a student Item 1 is ______ and item 2 is ______. Item 3 is ______ and item 4 is ______.
a final good which is government expenditurea final good which is government expenditure; an intermediate good a final good that is investment; a final good that is consumption expenditure
depository institution
a financial firm that takes deposits from households and firms
stock market
a financial market in which shares of stocks of corporations are traded
financial institution
a firm that operates on both sides of the market for financial capital. borrows in one market, lends in another
automatic fiscal policy
a fiscal policy action that is triggered by the state of the economy with no action by the government
P9. With the strengthening of the yen against the U.S. dollar in 2012, Japan's central bank did not take any action. A Japanese politician called on the central bank to take actions to weaken the yen, saying it will help exporters in the short run and have no long-run effects. Japan's current exchange rate policy is ______. The politician wants a ______ in the short run. This policy would have no effect on the exchange rate in the long run because in the long run ______.
a flexible exchange rate crawling peg; the price level and the nominal exchange rate are determined together
inferior good
a good for which demand decreases as income increases
normal good
a good for which demand increases as income increases D^ as I^
substitute
a good that can be used in place of another good
complement
a good that is used in conjunction with another good
balanced budget
a government budget in which receipts and outlays are equal
budget surplus
a government's budget balance that's positive - receipts exceed outlays
time series graph
a graph that measures time on the x-axis and the variable or variables in which we are interested on the y-axis
scatter diagram
a graph that plots the value of one variable against the value of another variable for a number of different values of each variable
9. If a country has a deficit in its net exports, it means that this country imports __________.
a greater value of goods and services than it exports
real income
a household's income expressed as a quantity of goods that the household can buy
P132. When the government imposes a tax on labor income, ______ the production function occurs and potential GDP ______.
a leftward movement along; decreases
P10. A rise in the money wage rate with no change in potential GDP creates ______.
a leftward shift of the SAS curve and no change in the LAS curve
10. The 1974-1975 recession was a result of a:
a leftward shift of the short-run aggregate supply curve
mortgage
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments
PT7. A mortgage is _______.
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments (repayments and interest)
hw7. A mortgage is _______.
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments (repayments and interest)
fiscal imbalance
a mismatch in the revenue powers and expenditure responsibilities of a governmen
10. Monetarism is a school of economic thought that favors:
a monetary growth rule.
inflation rate targeting
a monetary policy strategy in which the central bank makes a public commitment to achieve an explicit inflation rate and to explain how its policy actions will achieve that target
hw6. The effect of the United States returning millions of workers to their countries of origin is _____ the U.S. PF and _____ in potential GDP.
a movement down along; a decrease
P12. Eurozone Unemployment Hits Record High As Inflation Rises Unexpectedly Eurozone unemployment rose to 10.7 percent. At the same time, Eurozone inflation unexpectedly rose to 2.7 percent a year, up from the previous month's 2.6 percent a year. A very high unemployment rate can be accounted for by the Phillips curve model by all of the following except_______. Choose the statement that is incorrect about the Eurozone economy.
a movement up along the long-run Phillips curve if the natural unemployment rate increases A rise in the expected inflation rate shifts the short-run Phillips curve rightward.
P9. The United States is ______.
a net borrower and a debtor nation
12. Deflation is _______.
a persistently falling price level
P12. Deflation is _______.
a persistently falling price level
deflation
a persistently falling price level
inflation
a persistently rising price level
hw4. All of the following are examples of investment except ______.
a person money adding money to his retirement fund
comparative advantage
a person or country has comparative advantage in an activity if that person or country can perform the activity at a lower opportunity cost than anyone else or any other country
marginally attached worker
a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work some time in the recent past
troubled asset relief program
a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008
bond
a promise to make specified payments on specified dates
12. The best forecast available, which is based on all the relevant information is called _______.
a rational expectation
new classical cycle theory
a rational expectations theory of the business cycle in which the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve
New Keynesian cycle theory
a rational expectations theory of the business cycle that emphasizes the fact that today's money wage rates were negotiated at many past dates, which means that past rational expectations of the current price level influence the money wage rate and the position of the SAS curve
hw5. Classify each of the following into the appropriate category of unemployment. Your choices are: Frictional Cyclical Structural Seasonal Not unemployed a. An unemployed auto assembly line worker during a sales slump. b. A snow plow driver during the summer. c. A record player repairman who has not learned the latest laser disk player repair technology. d. A computer programmer who quits his job to look for a job with better benefits. e. A high school dropout with few skills who has been looking for a job unsuccessfully for weeks. f. A person who leaves their job to attend graduate school full time. g. A recent business school graduate looking for her first job. h. A person whose job has been automated out of existence. i. A vendor who sells beer at major league baseball games during the winter months. j. A welder who finds that robots have replaced most of the welding jobs on assembly lines. k. A top salesman for a computer company who quit because he did not like his boss. l. A parent who quit to care for his or her child at home. This person has removed themself from the labor force
a. Cyclical b. Seasonal c. Structural d. Frictional e. Structural f. Not unemployed g. Frictional h. Structural i. Seasonal j. Structural k. Frictional l. Not unemployed
hw5. If inflation is anticipated to be 5 percent per year and actual inflation for that year turns out to be 7 percent, identify whether each of the following groups would be helped or hurt by this, or if the effort is indeterminate. a. People who are living on fixed incomes. b. Banks that have made long-term fixed rate loans. c. People who have purchased bonds. d. A person who has purchased real estate with a bank loan. e. A recent college graduate with many loans to pay back. f. People who have purchased stock. g. Governments that have sold bonds. h. Savers with open passbook accounts. i. People who have purchased precious metals. j. Wage earners who are members of a strong union.
a. hurt b. hurt c. hurt d. helped e. helped f. helped g. helped h. hurt i. helped j. indeterminate
PQ13. The economy is in a recession and the recessionary gap is large. Discretionary fiscal policy that might occur is ______. Automatic fiscal policy that might occur is ______. A discretionary fiscal stimulation package that would avoid a budget deficit is a simultaneous and equal ______. Discretionary fiscal policy is risky because it is hampered by all of the following lags except ______.
an increase in government expenditure and a cut in taxes by a decision of Congress; an increase in transfer payments and a fall in taxes increase in government expenditure and an increase in taxes business cycle lag
P101. Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
mt3 Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
mt1. Consider the figure showing supply curves for soft drinks. Suppose the economy is at point a. A movement to point b could be the result of
an increase in technology.
P9. The events in the foreign exchange market, everything else remaining the same that could have resulted in this change in the value of the U.S. dollar include _______.
an increase in the Japanese interest rate and a decrease in the US interest rate.
P12. The economy starts out on the curves AD0 and SAS0. Some events then occur that generate a cost-push inflation. Which of the following events might cause a cost-push inflation? Starting at point A, the initial effect of a cost-push inflation is a move to point ______. As a cost-push inflation spiral proceeds, it follows the path ______.
an increase in the money wage rate or an increase in the money prices of raw materials B; E, G, I
consumer price index (CPI)
an index that measures the average of the prices paid by urban consumers for a fixed basket of consumer goods and services
hyperinflation
an inflation rate of 50% a month or higher that grinds the economy to a halt and causes a society to collapse
cost push inflation
an inflation that results from an initial increase in costs
demand-pull inflation
an inflation that starts because aggregate demand increases
P11. The multiplier is the amount by which the change in ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. For every dollar increase in ______ expenditure, the multiplier determines the increase in real GDP. The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to ______.
autonomous; autonomous increase real GDP by a given amount
P11. A multiplier is the amount by which a change in any component of _____ is magnified or multiplied to determine the change in _____ and _____ that it generates.
autonomous expenditure; equilibrium expenditure; real GDP
price level
average level of prices
velocity of circulation
average number of times a dollar of money is used annually to buy the goods and services that make up GDP
PT5. The reference base period for the CPI is 1982-1984. In January 2014, the CPI was 233.9. This number tells us that the ______ of the prices paid by urban consumers for a fixed basket of consumer goods and services was ______ .
average; 133.9 percent higher in January 2014 than in the average of 1982-1984.
PQ13. In 2015, the federal budget has projected _______.
a $644 billion budget deficit
hw8. A central bank is ______. The central bank in the United States is the ______.
a bank's bank and a public authority that regulates a nation's depository institutions and conducts monetary policy; Federal Reserve System
mt2. A central bank is ______. The central bank in the United States is the ______.
a bank's bank and a public authority that regulates a nation's depository institutions and conducts monetary policy; Federal Reserve System
10. At arrow 1 in the graph, the economy is in ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
a below; left
P102. The graph shows a business cycle. Draw a vertical arrow that shows: 1) a recessionary gap. Label it 1. 2) an inflationary gap. Label it 2. Draw a point that shows the economy at full employment. At arrow 1 in the graph, the economy is in ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve. At arrow 2, the economy is in ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
a below; left an above; right
mt2. A problem with using a commodity as money is ______.
a commodity's value changes over time
12. If the government increases its expenditure on goods and services and as a result, the money wage rate increases, the economy has experienced _______.
a demand-pull rise in the price level
DSM13 Changes in tax rates impact the economy through:
both aggregate demand and aggregate supply.
DSM3. Market price is determined by _________.
both supply and demand
P9. These events that resulted in this change in the value of the U.S. dollar changed _______.
both the demand for dollars and the supply of dollars
hw2. Suppose that the United States and Cuba decide to open up trade. If each country specializes in the good in which it has a comparative advantage, ______ will gain from that trade because ______.
both countries; consumption possibilities in both Cuba and the United States will lie outside their PPFs
10. An increase in potential GDP increases ______.
both long-run aggregate supply and short-run aggregate supply
P102. An increase in potential GDP increases ______.
both long-run aggregate supply and short-run aggregate supply
DSM13 A government that spends more than it collects in taxes experiences a:
budget deficit
DSM13. A government that collects more in taxes than it spends experiences a:
budget surplus
DSM13. If the federal government's expenditures are less than its revenue, there is a __________.
budget surplus
12. If workers and firms have rational expectations and wages and prices adjust quickly, an expansionary monetary policy will result in higher inflation;
but no change in the unemployment rate
10. Inflation expectations "become self-fulfilling" because consumers decide to _____, which ______.
buy more goods and services at today's lower prices; increases aggregate demand
hw4. I calculated real GDP by summing the components of aggregate _____, so I used the _____ approach.
expenditure; expenditure
P9. Could the change in the exchange rate on June 2 have resulted from the two announcements or must some other influence have changed too? If so, what might that influence have been? On June 2, the U.S. dollar depreciated rather than appreciated because a fall in U.S. _____ decreased the demand for U.S. dollars or an increase in U.S. _____ increased the supply of U.S. dollars
exports; imports
P9. Could the change in the exchange rate on June 2 have resulted from the two announcements or must some other influence have changed too? If so, what might that influence have been? On June 2, the U.S. dollar depreciated rather than appreciated because a fall in U.S. _____ decreased the demand for U.S. dollars or an increase in U.S. _____ increased the supply of U.S. dollars.
exports; imports
P9. Net exports is _____ of goods and services minus _____ of goods and services.
exports; imports
mt1. Net exports of goods and services is the value of _____ of goods and services _____ the value of _____ of goods and services.
exports; minus; imports
10. When aggregate demand increases, unemployment will usually __________ and inflation will __________.
fall, rise
12. The consequences of deflation include all of the following except _______.
falling real wage rates for workers with long-term wage contracts
P12. The consequences of deflation include all of the following except _______.
falling real wage rates for workers with long-term wage contracts
mt3. The consequences of deflation include all of the following except _______.
falling real wage rates for workers with long-term wage contracts
government expenditure
goods and services bought by governments
exports
goods and services that we sell to people in other countries
13. 2012 Deficit: Smaller, But Still Big- The components of government outlays and receipts which have changed most to contribute to the huge budget deficits in 2011 and 2012 are ______.
government expenditure and transfer payments
P11. The balanced budget multiplier equals the change in equilibrium expenditure and real GDP that results from equal changes in _____ divided by the change in government expenditure.
government expenditure and lump-sum taxes
budget deficit
government's budget balance that is negative - outlays exceed receipts
PQ13. A tax on interest income has a _______ impact than the same percentage tax on labor income. Suppose the real interest rate is 3 percent a year and the tax rate is 60 percent. The inflation rate is 2 percent a year. What is the real after-tax interest rate? The real after-tax interest rate is ___ percent a year, and the true tax rate is ____ percent. A tax on interest income ____ the after-tax interest rate, _____ saving, and ____ investment.
greater 0, 100 lowers, decreases, decreases
mt2. Nation's Economic Pain Deepens- The unemployment rate in May 2008 is ______ the estimated natural unemployment rate. This implies that real GDP is ______ potential GDP at this time.
greater than; less than
mt3. In January 2010, the exchange rate was 91 yen per U.S. dollar. By September 2010, the exchange rate had fallen to 84 yen per U.S. dollar. Given the information above, for a given expected future exchange rate, the expected profit from holding U.S. dollars is _______ in September 2010 than in January 2010. The quantity of U.S. dollars demanded is ______ in September 2010 than in January 2010. And the quantity of U.S. dollars supplied is ______ in January 2010 than in September 2010.
greater, greater; greater
PT5. When the unemployment rate is less than the natural unemployment rate, real GDP is ______ than potential GDP and the output gap is ______.
greater; positive
PT6. According to new growth theory, ______.
growth can persist indefinitely
capital acumulation
growth of capital resources, including human capital
DSM8. In the long run, the rate of inflation is determined by the __________.
growth of the money supply
PT6. In neoclassical growth theory, ______.
growth will stop if technology stops advancing
PQ13. The economy is at full employment, the inflation rate is 2 percent a year, and the federal budget deficit is 3.5 percent of GDP. Congress wants to make real GDP grow faster and is debating whether to spend more on infrastructure or to cut income taxes. 1a. What would be the short-run effects of new government infrastructure expenditure? In the short run, new infrastructure expenditure will increase the government budget deficit, which will_____ the real interest rate and _____ private investment. 1b. What would be the short-run effects of new infrastructure expenditure? In the short run, new infrastructure expenditure will _____ aggregate demand and with no change in aggregate supply will create _____ gap. 2. What would be the long-run effects of new government infrastructure expenditure? The long-run effects of new infrastructure expenditure are a _____ rate and _____ in potential GDP. 3. How would lower income taxes change the macroeconomic variables? Lower income taxes _____ equilibrium employment and _____ potential GDP. 4. Which policy would increase the economic growth rate? A _____ will increase investment income, which will increase the rate of capital accumulation and increase the economic growth rate.
increase; decrease some increase; an inflationary rise in the money wage; an increase increases; increases lower tax rate on interest income
9. During the 1990s, the flow of foreign investment in the United States __________.
increased dramatically
swapped troubled assets for safer assets
increased reserves and liquidity
11. The multiplier increases when the marginal propensity to consume
increases
P10. The Fed increases the quantity of money and all other things remain the same. In the short run, aggregate demand _______.
increases
hw2. Ann currently produces at point A in the figure. If Ann moves from point A to point C, her opportunity cost of a modem _______.
increases
mt1. An economy produces at point a on the PPF shown in the figure. A drought reduces the amount of wheat produced and the economy produces at point b. The opportunity cost of a unit of wheat ________.
increases
P10. Canada trades with the United States. Explain the effect of each of the following events on Canada's aggregate demand. The government of Canada cuts income taxes. Canada's aggregate demand _____ The United States experiences strong economic growth. Canada's aggregate demand ______ Canada sets new environmental standards that require power utilities to upgrade their production facilities. Canada's aggregate demand ______.
increases increases increases
10. Starting from a position of long-run equilibrium, an increase in government expenditures ______ real GDP and ______ the price level.
increases real GDP and raises the price level
PT5. Assume that the preconditions for labor productivity growth are in place. The pace of labor productivity growth is influenced by all of the following except ______.
population growth
hw6. The fundamental precondition for labor productivity growth is the incentive system created by all of the following except ______.
population growth
DSM5. The output gap is the difference between __________.
potential GDP and actual GDP
P101.In the long-run macroeconomic equilibrium, ______.
potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level.
P10. A recessionary gap eventually emerges even if aggregate demand remains constant because over time ______.
potential GDP increases
P101. Economic growth is the persistent increase in ______. Economic growth is accompanied by inflation when the ______.
potential GDP; AD curve shifts rightward at a faster rate than the LAS curve shifts rightward
P121. According to mainstream business cycle theory, ______ grows at a steady rate and ______ grows at a fluctuating rate.
potential GDP; aggregate demand
mt3. According to mainstream business cycle theory, ______ grows at a steady rate and ______ grows at a fluctuating rate.
potential GDP; aggregate demand
P12. The mainstream business cycle theory is that ______ grows at a steady rate while ______ grows at a fluctuating rate. In mainstream business cycle theory, the money wage rate is ____. If aggregate demand grows faster than potential GDP, ______ gap emerges and if it grows more slowly than potential GDP, ______ gap emerges.
potential GDP; aggregate demand sticky an inflationary; a recessionary
P131. The ______ is an amount of money that, if invested today, will grow to equal a given future amount when the interest that it earns is taken into account.
present value
P131. Fiscal imbalance is the ______ value of the government's commitments to pay benefits minus the ______ value of its tax revenues.
present; present
P9. An exchange rate is the _____ at which one currency exchanges for another in the foreign exchange market.
price
hw3. Oil soars to new record over $135- A shortage in the market for oil implies that ______.
price adjustments are being prevented from playing their role as the regulator of buying and selling plans
P12. According to RBC theory, the main source of economic fluctuations is a decrease in ______ The effect of this decrease is ______ in investment demand, ______ in the demand for loanable funds, and ______ in the real interest rate. The effect of this decrease is ______ in the demand for labor, ______ in the supply of labor, _____ in employment, and ______ in the real wage rate.
productivity growth decrease; decrease; decrease decrease; decrease; decrease; decrease
equilibrium quantity
quantity bought and sold at the equilibrium price
DSM3. At the market equilibrium price:
quantity demanded equals quantity supplied.
hw7. When the real interest rate risesrises, the ______ because the ______ is the opportunity cost of loanable funds.
quantity of loanable funds demanded decreases; real interest rate
PT7. When the real interest rate rises, the ______ because the ______ is the opportunity cost of loanable funds.
quantity of loanable funds demanded decreasesdecreases; real interest rate
P102. The quantity of real GDP supplied depends on all of the following except the _______.
quantity of real GDP demanded
mt3 The quantity of real GDP supplied depends on all of the following except the _______.
quantity of real GDP demanded
labor productivity
quantity of real GDP produced by an hour of labor
P101. An increase in the price level when the money wage rate remains unchanged increases ______.
quantity of real GDP supplied
DSM8. The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the __________.
quantity theory of money
hw4. In the United States, GDP is typically measured
quarterly.
P132. Four alternative fiscal policy changes that could be made to help the federal government meet its Social Security obligations are ______ income taxes, ______ Social Security taxes, ____ Social Security benefits, and _____ federal government discretionary spending.
raise raise cut cut
P10. The table shows the aggregate demand and short-run aggregate supply schedules of Lizard Island in which potential GDP is $600 billion. Calculate the short-run equilibrium real GDP and price level. Does the country have an inflationary gap or a recessionary gap and what is its magnitude? The country has _____ gap and its magnitude is $ _____ billion. If aggregate demand increases by $50 billion, what is the new short-run macroeconomic equilibrium and the output gap? The economy has _______ gap.
real GDP: 575 price level: 110 recessionary; 25 real GDP: 600 price level: 120 no
P12. The main criticisms of RBC theory include all of the following except ______. Defenders of RBC theory claim all of the following except _______.
real business cycle theory relies too heavily the role of money in the economy to make its predictions RBC theory is consistent with a negligible intertemporal substitution effect
hw6. The demand for labor is the relationship between the quantity of labor demanded and the ______. The supply of labor is the relationship between the quantity of labor supplied and the ______. The quantity of labor demanded is the number of labor hours ___ during a given period. The quantity of labor supplied is the number of labor hours _____ during a given period. The ____ wage rate adjusts to bring the labor market to equilibrium.
real wage rate; real wage rate hired by all the firms in the economy that all the households in the economy plan to work real
P10. Aggregate demand is the relationship between the quantity of _____ demanded and the _____ when all other influences on expenditure plans remain the same.
real GDP; price level
P10. Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant.
real GDP; price level
P10. Short-run macroeconomic equilibrium occurs when the quantity of _____ demanded equals the quantity of _____ supplied at the point of intersection of the _____ curve and the _____ curve.
real GDP; real GDP; AD; SAS
PT6. Between 1914 and 2014, the average growth rate of real GDP per person in the United States was 2 percent a year. During this period, ______ grew at a faster rate than ______.
real GDP; the population
DSM5. The history of hyperinflations includes __________.
recent events. Hyperinflations have occurred in recent times as well as the past
P10. As the price level rises, interest rates _____ and real wealth _______ People substitute goods in the ______ for goods in the ____ So, as the price level rises, there is ______.
rises; decreases future; present decrease in quantity of real GDP demanded
hw3. When a shortage arises, the price ______ to its equilibrium, which _______.
rises; decreases the quantity demanded and increases the quantity supplied
hw3. When the increase in demand is greater than the decrease in supply, the equilibrium price _____ and the equilibrium quantity _____. When the increase in demand is less than the decrease in supply, the equilibrium price _____ and the equilibrium quantity _____. When the increase in demand equals the decrease in supply, the equilibrium price _____ and the equilibrium quantity _____.
rises; increases rises; decreases rises; remains unchanged
DSM6. The defining characteristic of long-run economic growth is:
rising productivity
T91. Between 2012 and 2014, the U.S. exchange rate ______ against the Japanese yen because the U.S. interest rate differential was expected to _______.
rose; increase
dumping
sale by a foreign firm of exports at a lower price than the cost of production
hw3. Each of the following cause either a shift of the supply curve left or right or a movement along the supply curve up or down. Identify the proper change, using the words "shift left," "shift right," "movement up," or "movement down." (No apostrophes in your answers.) A decrease in the price of a raw material of production. The price of a complement in production falls. The price of a good rises and other influences stay the same. The price of a good is expected to rise in the future. The number of suppliers of a good increases. Advances in technology lower the cost of producing existing products. The weather that year is particularly perfect for agriculture
shift right, shift left movement up shift left shift right shift right shift right
9. A recession in the United States will __________.
shift the supply curve of dollars to the left
mt1. After Hurricane Katrina devastated parts of Mississippi and New Orleans in 2005, we can be sure that the production possibilities frontier for that area temporarily
shifted inward, toward the origin
P111. A fall in the price level _______.
shifts the AE curve upward and brings a movement down along the AD curve
mt2. An increase in labor productivity ______.
shifts the demand curve for labor rightward and the production function upward
PT6. An increase in labor productivity ______.
shifts the demand for labor curve rightward and the production function upward
hw6. An increase in labor productivity ______.
shifts the demand for labor curve rightward and the production function upward
PT6. An increase in the population ______.
shifts the supply of labor curve rightward and create a movement along the production function
hw6. An increase in the population ______.
shifts the supply of labor curve rightward and creates a movement along the production function
10. The long-run aggregate supply curve:
shifts to the right as technological change occurs
P12. If the natural unemployment rate increases, the long-run Phillips curve _______ and the short-run Phillips curve ______. The expected inflation rate _____.
shifts rightward; shifts rightward does not change
12. An economy is at potential GDP when it experiences an increase in costs. The economy experiences _______.
stagflation
P12. Recession? Maybe. Depression? Get Real. The unemployment rate during the Great Depression peaked at nearly 25 percent in 1933, after an initial spike from 3 percent in 1929 to nearly 8.7 percent in 1930. The unemployment rate is just 5 percent, only up from 4.5 percent a year ago. Also during the Great Depression there was deflation, which is not happening today. The inflation and unemployment trends during the Great Depression can be explained by a movement along the ______ Phillips curve that ______. During 2008, the inflation rate increased and the unemployment rate increased. These events ______.
short-run; lowers the inflation rate and increases the unemployment rate cannot be explained by a movement along the SRPC because along this curve the inflation rate and unemployment rate move in opposite directions
PQ13. Senate Approves Obama Tax Cut Plan- A stimulus package centred around a one-time consumer tax rebate is likely to have a ______ supply-side effect because ______.
small; it does not change the tax wedge
DSM13 We would expect the tax multiplier to be __________ in absolute value than the government purchases multiplier.
smaller
DSM2. The principle of increasing opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.
smaller
P9. In June 2011, the exchange rate was 0.69 euros per U.S. dollar. By June 2012, the exchange rate had risen to 0.79 euros per U.S. dollar. Given the information above, for a given expected future exchange rate, the expected profit from holding U.S. dollars is ______ in June 2012 than June 2011
smaller
mt3. In RBC theory, the lower the real interest rate, other things remaining the same, the ______ today.
smaller is the supply of labor
T122 In RBC theory, the lower the real interest rate, other things remaining the same, the ______ today.
smaller the supply of labor
P9. The quantity of U.S. dollars demanded is ______ in June 2012 than in June 2011. And the quantity of U.S. dollars supplied is ______ in June 2011 than in June 2012.
smaller; smaller
economics
social science that studies the choices that individuals, businesses, governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices
DSM8. If the Federal Reserve increases the money supply at 5% a year, in the long run there will be __________.
something less than 5% annual inflation
unemployment rate
the percentage of people in the labor force who are unemployed
labor force participation rate
the percentage of the working age population who are members of the labor force
business cycle
the periodic but irregular up and down movement of total production and other measures of economic activity
arbitrage
the practice of seeking to profit by buying in one market and selling for a higher price in another related market
DSM13 Many economists believe that tinkering with the economy via discretionary fiscal policy is not effective due to:
the presence of time lags.
PQ13. Fiscal imbalance is the present value of the government's commitments to pay benefits minus _____.
the present value of its tax revenues
fiscal imbalance
the present value of the government's commitments to pay benefits minus the present value of its tax revenues
PQ13. Increase in Payroll Taxes Needed for Social Security-Social Security faces a $5.3 trillion shortfall over the next 75 years, but a congressional report says the massive gap could be erased by increasing payroll taxes paid by both employees and employers from 6.2 percent to 7.3 percent and by raising the retirement age to 70. Social Security is facing a $5.3 trillion shortfall over the next 75 years because ______. Increasing payroll taxes ______ government receipts and raising the retirement age to 70 ______ government outlays, which would reduce the shortfall. The suggestions in the news clip _______ the generational imbalance.
the present value of the government's commitments to pay benefits exceeds the present value of its Social Security tax revenues increases; decreases change
PQ13. Under current policies, a plausible projection is that U.S. public debt will reach 250 percent of GDP in 30 years and nearly 500 percent in 50 years. A fiscal imbalance is ______. The U.S. government could reduce the fiscal imbalance by doing all of the following except _______. If the fiscal imbalance is reduced in a way that reduces benefits and hikes taxes that affect the current generation, the generational imbalance _____ change.
the present value of the government's commitments to pay benefits minus the present value of its tax revenues raising Social Security benefits will
council of economic advisers
the president's council whose main work is to monitor the economy and keep the President and the public well informed about the current state of the economy and the best available forecasts of where it's heading
P10. The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______, when everything else remains the same. A movement along the aggregate demand curve occurs if _______.
the price level the price level changes and all other factors remain unchanged
PT5. The CPI tells us ______.
the price level in a given period expressed as percentage of the price level in the base period, which is by definition equal to 100.
P131. The tax wedge is the gap between the before-tax and after-tax ______.
wage rates
hw2. Allocative efficiency occurs when ______.
we are producing at a point on the PPF such that marginal benefit at the quantity produced equals marginal cost
margin
when a choice is made by comparing a little more of something with its cost, the choice is made at the margin
10. The wealth effect refers to the fact that:
when the price level falls, the real value of household wealth rises, and so will consumption
T122 A rational expectation _______.
will often turn out to be wrong, but no other forecast that could have been made could do it better
mt2. In an economy, there is $75 million in currency held outside banks, $175 million in traveler's checks, $225 million in currency held inside the banks, $100 million in checking deposits, $600 million in savings deposits, $1,200 million in time deposits, and $1,000 million in money market mutual funds and other deposits. The value of M1 is ______ and the value of M2 is ______.
$350 million; $3,150 million
PT5. The personal consumption expenditure deflator is calculated as _______.
(Nominal C divided by Real C) times ×100
hw6. Over the past 100 years, the average growth rate of U.S. real GDP per person is 2 percent. Over the past 100 years, growth was most rapid during the ______ and slowest during the ______.
1960s; Great Depression
hw2. When Kim and Liam move from spending 30 minutes of each hour producing pies and 30 minutes producing cakes to specializing in the good in which they have a comparative advantage, the total gains from trade are ______ pies and ______ cakes. If they share the total gains equally, Kim gives Liam ______ and Liam gives Kim ______.
30; 100 50 cakes; 15 pies
P121.In ______ cycle theory, animal spirits are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
Keynesian; monetarist
PQ13. The relationship between the tax rate and the amount of tax revenue collected is called the ______ curve. If the United States were on the "wrong" side of this curve, a decrease in the tax rate would ______ tax revenue.
Laffer; increase
mt2. M2 consists of _____ plus _____ and _____ deposits, _____, and other deposits.
M1; savings deposits; small time; money market funds
P10. Mexico trades with the United States. When the U.S. economy goes into a recession, ______. When Mexico increases the quantity of money, Mexico's aggregate demand ______. When the price level in Mexico falls, the quantity of real GDP increases
Mexico's exports to the United States decrease, Mexico's aggregate demand decreases, and Mexico's AD curve shifts leftward increases and its AD curve shifts rightward
mt1. Nominal GDP is ______. Real GDP is ______.
a more precise name for GDP; the value of final goods and services produced in a given year when valued at the prices of a reference base year
P9. The U.S. dollar exchange rate increased from $0.96 Canadian in June 2011 to $1.03 Canadian in June 2012, and it decreased from 81 Japanese yenJapanese yen in June 2011 to 7878 Japanese yen in June 2012. Between June 2011 and June 2012, the U.S. dollar ______ against the Canadian dollar. Between June 2011 and June 2012, the U.S. dollar ______ against the Japanese yenJapanese yen.
appreciated; depreciated
T91. If the U.S. exchange rate changes from $1.00 Canadian to $1.05 Canadian, then the U.S. dollar has _______ and the Canadian dollar has _______.
appreciated; depreciated
11. The multiplier is the amount by which the change in ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. For every dollar increase in ______ expenditure, the multiplier determines the increase in real GDP.
autonomous; autonomous
11. The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______.
autonomous; the change in equilibrium expenditure and real GDP
P9. Arbitrage is the practice of seeking to profit by _____ in one market and _____ in another related market.
buying; selling for a higher price
P9. The ______ account records receipts from exports of goods and services sold abroad, payments for imports of goods and services from abroad, and ______.
current; net interest income paid abroad and net transfers
PQ13. The government increases the tax rate on labor income. As a result, the supply of labor ______ and the demand for labor ______. The equilibrium level of employment ______. At the equilibrium level of employment, the before-tax wage rate ______ and the after-tax wage rate ______. Potential GDP _____.
decreases; does not change decreases rises; falls decreases
P112. For a given increase in aggregate demand, the steeper the slope of the short-run aggregate supply curve, the ______ is the increase in the price level and the ______ is the multiplier effect on real GDP in the short run.
larger; smaller
mt1. Real GDP is the value of the _____ goods and services produced in a given year expressed in terms of the prices in _____ year. Nominal GDP is the value of the _____ goods and services produced in a given year expressed in terms of the prices of _____ year.
final; a base; final; that same
mt1. Gross domestic product (GDP) is the market value of all the _____ goods and services produced _____ a country in a given time period.
final; within
mt2. When the unemployment rate is less than the natural unemployment rate, real GDP is ______ than potential GDP and the output gap is ______.
greater; positive
T91. The law of demand for foreign exchange states that other things remaining the same, the ______ the exchange rate, the smaller is the ______ in the foreign exchange market.
higher; quantity of U.S. dollars demanded
P9. Explain the effect of the Bank of Japan's announcement on the demand for and supply of U.S. dollars. The Bank of Japan's announcement would _____ the demand for U.S. dollars and _____ the supply of U.S. dollars on June 2.
increase; decrease
P9. Explain the effect of the Fed's announcement on the demand for and supply of U.S. dollars. The demand for U.S. dollars would _____ and the supply of U.S. dollars would _____ on June 2.
increase; decrease
9. If speculation like that made by Mr. Reddy becomes widespread, the demand for U.S. dollars will ______ and the supply of U.S. dollars will ______. The U.S. dollar exchange rate will
increase; decrease rise
PQ13. Taxes and needs-tested spending work as automatic fiscal policy to dampen the business cycle because taxes ______ during an expansion, and needs-tested spending ______ during a recession.
increase; increases
PQ13. Economy Needs Treatment-Since 2008, U.S. government debt has ______ because as a percentage of GDP, _______. A "credible business plan" for the government to adopt is a plan to ______.
increased; outlays increased by more than receipts increased decrease government expenditure
mt3. If an economy experiences a decrease in the money supply, short-run unemployment
increases, and short-run output decreases
mt2. If an economy experiences a decrease in the money supply, short-run unemployment
increases, and short-run output decreases.
P10. Starting from a full-employment equilibrium, an increase in aggregate demand ______ real GDP, and creates ______ gap. In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium. Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ real GDP. ______ is increased
increases; an inflationary rises; decreases increases; decreases Stagflation
hw2. As we move from point A to point B to point C, the opportunity cost of producing a pair of cargo pants ______ because resources ______
increases; are not all equally productive in all activities
P10. The fall in the average weekly wage rate ______ short-run aggregate supply and ______ long-run aggregate supply. The fall in the minimum wage ______ short-run aggregate supply and ______ long-run aggregate supply.
increases; does not change increases; increases
hw2. With this new technology, the opportunity cost of producing a ton of salmon ______ and the fish farmfish farm is ______ efficient.
increases; equally
P10. Treasury Secretary Timothy Geithner is reported as having said that the United States can no longer rely on consumer spending to be the growth engine of recovery from recession. Washington needs to plant the seeds for business investment and exports. "We can't go back to a situation where we're depending on a near short-term boost in consumption to carry us forward," he said. In the short run, an increase in consumer spending ______ real GDP and ______ the price level. In the short run, an increase in business investment ______ real GDP and ______ the price level. In the short run, an increase in exports ______ real GDP and ______ the price level.
increases; increases increases; increases increases; increases
PT6. An increase in the population ______ the equilibrium quantity of labor, ______ and potential GDP. An increase in the population _______ the real wage rate.
increases; increases lowers
P10. The increase in the personal consumption expenditures ______ aggregate demand. The increase in exports ______ aggregate demand. The increase in investment ______ aggregate demand. The decrease in government spending _______ aggregate demand.
increases; increases increases; decreases
P10. If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
increases; short-run
mt3. If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
increases; short-run
PQ13. Stimulus Debate Turns on Rebates- $150 billion worth of government spending would have a ______ effect on aggregate demand than $150 billion worth of tax rebates because ______ .
larger; all of government expenditure is added to aggregate demand but part of the tax rebates is saved
P12. Stagflation Is Back. Here's How to Beat It- Read the news clip, then answer the following question. The analysis of macroeconomic performance in the news clip reflects the ______ business cycle theory because it discusses ______.
real; factors that change potential GDP
PQ13. Do Tax Cuts Ever Increase Government Revenues?-Republican politicians insist that tax cuts "pay for themselves," increasing receipts by goosing economic growth. Democrats and virtually all economists say they're wrong. A tax cut pays for itself if the economy lies to the ______ of the maximum point on the Laffer curve. This statement implies that the absolute value of the tax multiplier is ______. Tax cuts will not pay for themselves if ______.
right; greater than 1 the economy lies to the left of the maximum point on the Laffer curve
hw8. When the interest rate rises, other things remaining the same, the opportunity cost of holding money ______ and ______.
rises; the quantity of money demanded decreases
hw3. In 1998, the price of a barrel of oil was $20. In 2012, the price of a barrel of oil was $106. In 1998, the price of a loaf of bread was $0.86. In 2012, the price of a loaf of bread was $2.32. Between 1998 and 2012, the relative price of a barrel of oil with respect to a loaf of bread _______ and the relative price of a loaf of bread with respect to a barrel of oil _______.
rose; fell
P10. The defining feature of the classical view of macroeconomics is that the economy is ______. Classical macroeconomists recommend ______.
self-regulating and always at full employment policies that minimize the disincentive effects of taxes on employment, investment, and technological change
P10. The defining feature of the monetarist view of macroeconomics is that the economy is______. Monetarist macroeconomists recommend ______.
self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady policies that keep taxes low to avoid disincentive effects that decrease potential GDP
P101. The business cycle is actually a continuous series of different ______.
short-run macroeconomic equilibriums
P131. When a tax is applied to labor income, the result is a ______ full-employment quantity of labor and a ______ potential GDP.
smaller; lower
PQ13. The effect of tax cuts depends on who receives the tax cuts because the greater the amount of disposable income that is ______ the greater is the increase in ______.
spent; aggregate demand
