Macroeconomics Final

Economic growth is measured by a. changes in real GDP b. changes in nominal GDP c. changes in the employment rate d. all of the above

changes in real GDP

The consumer price index (CPI) a. compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2. b. compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period. c. measures the increase in the prices of the goods included in GDP. d. is the ratio of the average price of a typical basket of goods to the cost of producing those goods.

compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

The circular flow model shows that consumer goods and services produced by business firms are sold in the a. goods market. b. factor market. c. labor market. d. financial market.

goods market

The official U-3 Unemployment rate a. includes persons without a job who have made efforts in the last week to find a job b. includes persons without a job, whether they are actively searching for work or not c. counts discouraged workers as unemployed d. counts people with part-time jobs who want full-time jobs as unemployed

includes persons without a job who have made efforts in the last week to find a job

The real interest rate equals a. the nominal interest rate plus the rate of expected inflation b. the nominal interest rate divided by the rate of expected inflation c. the rate of expected inflation minus the nominal interest rate d. the nominal interest rate minus the rate of expected inflation

the nominal interest rate minus the rate of expected inflation

Compared to an economy that uses a medium of exchange, in a barter economy a. transaction costs are higher b. transaction costs are lower c. liquidity costs are higher d. liquidity costs are lower

transaction costs are higher

Money multiplier formula

(1/required reserve)

The labor force participation rate is the ratio of a. (the labor force divided by the working-age population) multiplied by 100. b. (the number of unemployed divided by the working-age population) multiplied by 100. c. (the labor force divided by the total population) multiplied by 100. d. (the number of unemployed divided by the labor force) multiplied by 100.

(the labor force divided by the working-age population) multiplied by 100.

At the end of last year, the CPI equaled 120. At the end of this year, the CPI equals 132. What is the inflation rate over this year? A) 6 percent B) 10 percent C) 12 percent D) None of the above answers are correct because more information is needed to calculate the inflation rate.

10 percent **Inflation rate = (recent IR - comparison IR)/comparison IR (132-120)/120**

If the basket of goods and services used to calculate the CPI cost $200 in the reference base period and $450 in a later year, the CPI for the latter year equals A) 200. B) 225. C) 325. D) 450.

225 **CPI = (current price/base price) x 100 (450/200) x 100 = 225**

What are liquid assets?

A liquid asset is an asset that can be converted into cash quickly, with minimal impact to the price received in the open market.

Which economics theory is being described? - Wages, prices are flexible - The economy is self-regulating - Laissez-faire is the right and sensible economic policy to implement

Classical

Absolute advantage is defined as a situation whereby a country can produce a good with lower opportunity cost than another country. (T/F)

False

Capital deepening does not refer to an increase in the amount of capital per worker. (T/F)

False

Keynesian macroeconomics argue that the solution to an inflation is expansionary fiscal policy. (T/F)

False

The Phillip's curve attempts to show the trade-off between inflation and real GDP. (T/F)

False

The purpose of most trade barriers is to raise money for the government. (T/F)

False

The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the a. Board of Governors b. Chairman of the Board of Governors c. Federal Open Market Committee d. Open Market Advisory Council

Federal Open Market Committee

GDP deflator formula

GDP deflator = (nominal GDP/real GDP) x 100 ** if nominal GDP is $100,000, and real GDP is $45,000, then the GDP deflator will be 222. (100,000/45,000)x100 = 222.22 **

If unemployment is less than the natural rate of employment, which of the following is most likely? a. The economy is in a long-run equilibrium b. The economy is in an inflationary gap c. The economy is in a recessionary gap d. Not enough information to make a prediction

Not enough information to make a prediction

Suppose the Consumer Price Index is 143.6. What does that number mean? a. On average, goods cost $143.60. b. On average, goods cost $243.60. c. Prices rose 143.6 percent over the reference base period, on average. d. Prices rose 43.6 percent over the reference base period, on average.

Prices rose 43.6 percent over the reference base period, on average.

David Ricardo is considered the father of comparative advantage. (T/F)

True

For Say's Law to hold true, savings must equal investment. (T/F)

True

Keynes believed that Sticky Wages can lead to an excess supply of labor. (T/F)

True

Keynes believes that aggregate demand is more likely than aggregate supply to be the primary cause of a recession. (T/F)

True

The absence of cyclical unemployment means the economy is at the natural unemployment rate. (T/F)

True

When countries with lower levels of GDP per capita catch up to countries with higher levels of GDP per capita, the process is called convergence. (T/F)

True

Of the following assets, the lest liquid is a. stocks b. traveler's checks c. checking deposits d. a house

a house

Which of the following is not a function of money? a. store of value b. unit of account c. standard of deferred payment d. medium of exchange e. all are functions of money

all are functions of money

Which of the following is a reason the Federal Reserve prefers Open Market Operations? a. flexible b. secretive c. reversible d. quick e. all are reasons the Fed prefers Open Market Operations

all are reasons the Fed prefers Open Market Operations

If the price level doubles, the value of money a. doubles b. more than doubles, due to scale economies c. rises but does not double, due to diminishing returns d. falls by 50 percent

falls by 50 percent

Cyclical unemployment a. is due mainly to job leavers b. may increase of decrease during an expansion c. occurs when technology improvements change job requirements a. fluctuates over a business cycle

fluctuates over a business cycle

Gross domestic product is the total ________ produced within a country in a given time period. a. market value of all final and intermediate goods and services b. market value of all goods and services c. amount of final and intermediate goods and services d. market value of all final goods and services

market value of all final goods and services

Which of the following is included in M2 but not in M1? a. NOW accounts b. Demand deposits c. Currency d. Money market mutual fund shares (noninstitutional) e. gold coins issued by the U.S. Treasury

money market mutual fund shares

Real GDP measures a. personal income adjusted for taxes b. national output adjusted for changes in the quality of products c. national output adjusted for price level changes d. nominal output adjusted for changes in national income because of economic booms e. national output adjusted for unemployment

national output adjusted for price level changes

What are the four parts of a business cycle?

peak, recession, trough, expansion

If the CPI is 120, this means that a. prices are 120 percent higher than in the reference base period. b. prices are 0.12 times higher than in the reference base period. c. prices are 20 percent higher than in the reference base period. d. the inflation rate must be positive. Answer: C

prices are 20 percent higher than in the reference base period.

Standard of living is calculated by ____________________ per capita.

real GDP

Interest rates are difficult to measure because A) data on them are not timely available B) real interest rates depend on the hard-to-determine expected inflation rate C) they fluctuate too often to be accurate D) they cannot be controlled by the Fed

real interest rates depend on the hard-to-determine expected inflation rate

In the definition of GDP, ʺmarket valueʺ refers to a. valuing production in production units b. not counting intermediate products c. valuing production according to the market price d. when the production took place

valuing production according to the market price

If the nominal interest rate is less than the rate of inflation, the real interest rate a. will be less than zero b. does not change c. will equal zero d. will be greater than zero e. this can never happen

will be less than zero

Which of the following decreases the official U-3 unemployment rate? a. workers leave the labor force b. more women enter the labor force and seek jobs c. young people graduate from college and start to look for their first full-time job d. none of the above because they all increase or do not change the unemployment rate

workers leave the labor force