Macroeconomics 1015 final

Scenario. Take the following information as given for a small, imaginary economy: When income is $10,000, consumption spending is $6,500. When income is $11,000, consumption spending is $7,250. 56. Refer to the scenario above. For this economy, an initial increase of $200 in net exports translates into a(n)

$800 increase in aggregate demand in the absence of the crowding-out effect.

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

10000$

In 2010, the imaginary nation of Bovina had a population of 5,000 and real GDP of 600,000. In 2011 it had a population of 5,200 and real GDP of 636,480. During 2011 real GDP per person in Bovina grew by

2 percent, which is about the same as average U.S. growth over the last one hundred years.

Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.'s net capital outflow?

both Matt's and Melinda's

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

decrease the money supply, which will increase interest rate

Which good(s) does Denmark have an absolute advantage producing?

neither ham nor eggs.

People had been expecting the price level to be 140 but it turns out to be 138. Johnson Family Restaurants increases the number of workers it employs. What could explain this?

neither sticky wage theory nor sticky price theory

Suppose that the money supply decreases. In the short run, this increases prices according to

neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.

In order to understand how the economy works in the short run, we need to

study a model in which real and nominal variables interact.

If the U.S. were to impose import quotas

the demand for dollars in the market for foreign-currency exchange would increase, but the demand for loanable funds would not.

As the price level rises,

the exchange rate rises, so net exports fall.

If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?

$2,591.85

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

$37.50 purchases today

A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?

$400 billion

You have some estimates of national accounts numbers for a closed economy for the coming year. Under one set of expectations, government purchases will be $30 billion, transfer payments will be $10 billion, and taxes will be $45 billion. Under another set of expectations, GDP will be $200 billion, taxes will be $50 billion, transfer payments will be $20 billion, consumption will be $120 billion, and investment will be $40 billion. Based on these numbers in the first case there should be a

$5 billion surplus, and in the second case a $10 billion deficit.

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates?

$5 in the U.S. and 3 euros in Italy.

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

$60.75

Person Status Allen Unpaid stay at home dad. Has not looked for a job in several years. Ben College president. Allison Part-time welder. Actively looking for full time work. Brittany Self-employed full-time wedding singer. Cathy Full-time physician's assistant. Calvin Retired finance professor. Last applied for work 10 weeks ago. Diane Laid-off fork-lift operator expecting to be recalled. David Works for a bicycle store. Age 70. Evelyn Manager of health food store. Eli Museum guard. Was not at work last week due to illness. Flora Has never been employed. Looked for a job last week. Frank Fired from job as an investment banker. Last looked for work three weeks How many in the sample are unemployed?

3

Suppose that an economy produces 20,000 units of good A which sells at $3 a unit and 40,000 units of good B which sells at $1 per unit. Production of good A contributes

3/2 times as much to GDP as the production of good B

Labor Hours Needed to 1 Dozen Eggs 1 Pound Ham Denmark 10 eggs 8 ham Finland 6 eggs 4 hame 5. Refer to the table above. Denmark's opportunity cost of producing 1dozen eggs is

5/4 pounds of ham. This is lower than Finland's opportunity cost of producing 1 dozen eggs.

The nominal exchange rate is .80 euros per U.S. dollar and a basket of goods in France costs 1,000 euros while the same basket costs $800 in the U.S. The nominal exchange rate is 1.2 Australian dollars per U.S. dollar and a basket of goods in Australia costs 960 Australian dollars while the same basket costs $800 in the U.S.. Which country has purchasing-power parity with the U.S.?

Australia but not France

Which of the following causes of unemployment is not associated with a wage rate above the market equilibrium level? a. efficiency wages b. job search c. minimum-wage laws d. unions

B

Which of the following is considered part of the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model? a. both a U.S. bank wanting to lend money to a Canadian company and a U.S. firm wanting to buy computers made in South Korea b. a U.S. bank wanting to lend money to a Canadian company, but not a U.S. firm wanting to buy computers made in South Korea c. a U.S. firm wanting to buy computers made in South Korea, but not a U.S.bank wanting to lend money to a Canadian company d. neither a U.S. bank wanting to lend money to a Canadian company nor a U.S. firm wanting to buy computers made in South Korea

B

Tom Brady should pay someone else to mow his lawn instead of mowing it himself, unless

Brady has a comparative advantage over everyone else in mowing his lawn.

Which of the following would help explain why the aggregate demand curve slopes downward? a. An unexpectedly low price level raises the real wage, which causes firms to hire fewer workers and produce a smaller quantity of goods and services. b. A lower price level causes domestic interest rates to rise and the real exchange rate to appreciate, which stimulates spending on net exports. c. A higher price level increases real wealth, which stimulates spending on consumption. d. A lower price level reduces the interest rate, which encourages greater spending on investment goods. the exchange rate rises, so net exports fall.

D

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run

Expected inflation would exceed actual inflation, and unemployment would exceed its natural rate.

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

Federal Reserve increase the money supply or the government decrease taxes.

GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is

GDP per person.

Given the following information, what are the values of M1 and M2? Small time deposits $2,200 billion Demand deposits and other checkable deposits $1,700 billion Savings deposits $2,600 billion Money market mutual funds $1,500 billion Traveler's checks $60 billion Large time deposits $1,500 billion Currency $350 billion

M1 = $2,110 billion, M2 = $8,485 billion

Denmark is an importer of computer chips and adds a $5 per chip tariff to the world price of $12 per chip. Suppose Denmark removes the tariff. Which of the following outcomes is not possible?

More Danish-produced chips are sold in Denmark.

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

Output will rise but by less than it did when the previous unit was added.

Which of the following is the most accurate statement? a. The one argument for restricting trade that almost all economists accept as valid is the infant-industry argument. b. Almost all economists insist that it is never appropriate to protect "key" industries, even when there are legitimate concerns about national security. c. The idea that one nation might want to threaten another nation with a trade restriction is associated with the protection-as-a-bargaining-chip argument for restricting trade. d. The protection-as-a-bargaining-chip argument for restricting trade is also known as the infant-industry argument.

The idea that one nation might want to threaten another nation with a trade restriction is associated with the protection-as-a-bargaining-chip argument for restricting trade.

The U.S. government increases its budget deficit, but at the same time Congress eliminates an investment tax credit. Which of the following is correct?

The interest rate may increase or decrease; investment will decrease

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

The nominal interest rate was 6 percent and the inflation rate was 2 percent.

Efficiency is illustrated by

The production possibilities frontier only

Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The end result of these two transactions is

U.S. consumption purchases increase by $200 and U.S. GDP increases by $200

If the budget deficit increases, then

U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase more U.S. assets

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

a sacrifice of 5 percent of annual output.

Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier?

a. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars) b. (200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars) c. (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars) d. (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars) B..

Which of the following statements is true?

a. Productivity is calculated as hours worked divided by output produced. b. Americans have a higher standard of living than Indonesians because American workers are more productive than Indonesian workers. c. Both A and B are correct. d. None of the above are correct. B

Which of the following does not help reduce frictional unemployment?

a. government-run employment agencies b. public training programs c. unemployment insurance d. All of the above help reduce frictional unemployment. C

Minimum-wage laws can keep wages...

above equilibrium and cause a surplus of labor.

The initial impact of an increase in an investment tax credit is to shift

aggregate demand right

The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the

amount of the other good that must be given up.

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory,

inflation averaged 5% per year and the real rate of return was 4%.

As opposed to an increase in government expenditures, a tax cut

is likely to impact spending faster, but according to traditional theory has a smaller multiplier

Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated 8 they would be down. According to the efficient markets hypothesis, which of the these things make the price of FineLine Corporation Stock fall?

only the interest rate rising

Real GDP will increase

only when output increases.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,

production is more profitable and employment rises.

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

right, raising the price level.

An adverse supply shock causes inflation to

rise and the short-run Phillips curve to shift righ

Relative-price variability

rises with inflation, leading to a misallocation of resources.

If people decide to hold less currency relative to deposits, the money supply

rises. The Fed could lessen the impact of this by selling Treasury bonds.

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

the interest rate to fall, so aggregate demand shifts right

Imagine two economies that are identical except that for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $500 billion. It follows tha

the price level, but not real GDP is lower in country B.

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced

In the long run, if there is an increase in the money supply growth rate, which of the following curves shifts right?

the short-run but not the long run Phillips curve

Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil if we know that

the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed