Macroeconomics final
Suppose disposable income increases by $5,000. As a result, consumption increases by $4,300. The marginal propensity to save (MPS) is
.14 because MPS=1-increase of consumption/increase in income
Suppose disposable income increases by $5,000. As a result, consumption increases by $4,300. The marginal propensity to consume (MPC) is
.86 because MPC=Increase in Consumption/Increase in income
After the financial crisis that hits the country of Arcadia in 2012, a total of 4 million people are unemployed. If 55 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.
6.78% unemployment rate=unemployed people/total labor force
Actual investment spending tends to be different from planned investment spending. Which of the choices best explains why this is true?
Firms are unable to perfectly anticipate sales of their products.
Assume that the Harmonia labor market is at the market equilibrium before the new minimum wage. The Harmonian government decides to introduce a minimum wage that is higher than the current market equilibrium wage. Which type of unemployment is affected by the new minimum wage?
Structural unemployment
If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?
The business will not take out the loan.
Given the market conditions, what will the prevailing interest be? (interest rate Y-axis, quantity of loanable funds X-axis)
The interest rate value on the y axis where the supply and demand curve intersect.
Given the market conditions, how much money is borrowed in the loanable funds market? (interest rate Y-axis, quantity of loanable funds X-axis)
The quantity of loanable funds value on the x-axis where the supply and demand curve intersect.
Which is true if a nation is currently experiencing full employment?
The rate of cyclical unemployment is 0%
Which of the terms acts as the "price" in the market for loanable funds? (interest rate, supply, demand, capital)
interest rate
Individuals who want to work, but have given up searching for a job because of limited prospects, are known as
marginally attached workers
Number of people out of labor force=
people above age 16-labor force
What type of spending depends primarily on these three factors: the interest rate, the expected future level of real GDP, and the current level of production capacity?
planned investment spending
The source of the _______ for loanable funds is saving.
supply
Which of the factors would decrease the rate of frictional unemployment?
the advent of the Internet, which makes finding available jobs easier
The slope of the consumption function is equal to
the marginal propensity to consume.
The labour force is comprised of
the number of people counted as employed and the number of people counted as unemployed.
Which factor brings the supply and demand of loanable funds into balance?
the real interest rate
The consumption function describes the relationship between consumption spending and
disposable income.
total labor force participation rate=
labor force/people above age 16
The multiplier (expenditure multiplier) is the ratio between which two measures?
total change in real GDP due to an autonomous change in aggregate spending AND the size of the autonomous change in aggregate spending
Individuals who are involuntarily working part‑time are considered
underemployed.
unemployment rate=
unemployed/labor force
Consider a scenario in which each person is an island. In this scenario, James and Kate engage in international trade with each other. James is lactose intolerant and only produces cheese. Kate is caffeine intolerant and only produces coffee. Thus, both "countries" export all their production to the other. This month James produced 17 17 pounds of cheese and Kate 15 15 pounds of coffee. For simplicity, assume that they share a common currency (the US dollar) and that the price of a pound of coffee is $1, the same as a pound of cheese. b) What is the direction of the flow of international savings?
Kate is receiving a flow of James' savings that amounts to $2.00. (The person with a positive trade balance is the sender of flow savings, while the negative trade balance person is the one receiving of the flow savings. The amount is the difference between both trade in $.
How does funding from national savings differ from funding obtained from capital inflows?
National savings are repaid domestically, whereas capital inflows are repaid to foreigners.
As interest rate decreases, what happens to the quantity of loanable funds demanded?
Quantity demanded will increase.
What effect will an increase in interest rates have on the quantity of loanable funds supplied?
Quantity supplied will increase.
Which best describes why the multiplier exists?
When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way.
Unemployed=
employable people actively seeking a job but not finding one
Labor force=
employed + unemployed
The natural rate of unemployment equals
frictional unemployment plus structural unemployment.
The term inventories is best described as
goods that have been produced but remain unsold.
Consider a scenario in which each person is an island. In this scenario, James and Kate engage in international trade with each other. James is lactose intolerant and only produces cheese. Kate is caffeine intolerant and only produces coffee. Thus, both "countries" export all their production to the other. This month James produced 17 17 pounds of cheese and Kate 15 15 pounds of coffee. For simplicity, assume that they share a common currency (the US dollar) and that the price of a pound of coffee is $1, the same as a pound of cheese. Who has a negative trade balance with the other country?
Kate because her trade balance is negative 15(coffee)-17(cheese) is a negative number while James trade balance is a positive number.
