Macroeconomics Final Exam
23. Keynesian economists believe that government intervention in the economy is necessary because
Prices are sticky and prevent the economy from moving toward full employment.
20. The Great Depression is characterized by a decrease in aggregate demand. Of the following factors, which would have caused aggregate demand to decrease?
A decrease in expected future income
35.multiplier is 5, what is the marginal propensity to consume in the economy?
0.8
Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about
1.2, and X and Y are substitutes
21. According to classical economists, changes in aggregate demand have little effect on the overall economy, and therefore
A long-run aggregate supply is the primary source of economic growth.
A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity. Of supply for bagels is about
1.63
24.If 2013 is the base year, then the CPI for 2013 was
100.0
22.If 2012 is the base year, then the CPI for 2013 was
104.4
19. Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $58. The value of the CPI in2016 was
111.5
7.What was this country's GDP deflator in 2017?
123.4
Elasticity is
A measure of how much buyers and sellers respond to changes in market conditions.
How is opportunity cost illustrated?
A move from pint B to point C
37.Which event could be expected to shift a nation's supply of loanable funds as shown in the accompanying graph?
A nationwide burst of economic prosperity
60.The president of a poor country has announced that he will implement the following measures which he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in domestic industries by foreigners because they take some of the profits out of the country; 4. Encourage trade with neighboring countries; and 5. Increase the fraction of GDP devoted to consumption. How many of these measures will have a positive effect on growth?
2
6.In which year was this country's real GDP highest?
2016
5.In which year was this country's nominal GDP highest?
2017
47.Which of the following does the Federal Reserve not do?
Convert Federal Reserve Notes into gold
The opportunity cost of every investment in capital goods is
Current consumption (consumer goods).
At the price of $5 per pack of batteries, Duracell sells 10,000 packs of batteries and Energizer sells 15,000 packs of batteries. When the price rises to $7.50, Duracell sells 12,000 packs of batteries and Energizer sells 16,000 packs of batteries. What is the market supply at $7.50?
28,000
Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about
3.17, and Tess regards handbags ass normal goods.
27. The largest source of tax revenue for the federal government comes from ________ taxes.
Individual income
Chris and Tony both produce tomatoes and pasta sauce. The table shows their possible production per month if both work the same number 8 hour days. Given this information, Chris's opportunity cost of 1lb. of tomatoes is
30 jars of sauce and Tony's opportunity cost of 1 lb. of tomatoes is 20 jars of sauce.
55.If your income increases at a rate of 2 percent per year, how long will it take to double your income?
35 years
25.If 2013 is the base year, then the inflation rate in 2013 was
4.4 percent
16. If the local government imposed a minimum wage of $7 in Productionville, how many people would be unemployed?
5,000
8.What was this country's inflation rate in 2017?
7.7%
52.If the reserve ratio is 12 percent, then the money multiplier is
8.3.
23.If 2013 is the base year, then the CPI for 2012 was
95.7
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
A 13.33 percent increase in the price of the good
60.In the following figure, the green arrows represent flows. Identify each of the flows for points A, B, C, and D.
A = deposits, B = federal funds, C = loans, D = discount loans
50.If a bank has a required reserve ratio of 15 percent and has required reserves of $225,000,000, how much does the bank hold in deposits
$1,500,000,000
58.What is the value of M2?
$1,650,000,000
54.The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?
$19.5 million
20.The cost of the basket in 2012 was
$225
21.The cost of the basket in 2013 was
$235
42.If the interest rate of a one-year bond is 10 percent and its face value is $5,000, the dollar price of the bond is
$4,545.45
51.Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?
$4,937.5 billion
The equilibrium price and quantity in this market are
$4.00 and 40 units.
Consider Frank's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Frank's cost of going to college is
$42,600
40.The par value of the bond mentioned in the scenario is equal to
$5,000
59.What is the value of M2 that is not part of M1?
$906,000,000
Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of these pairs of pints could be on Brazil's production possibilities frontier?
(200 cashews, 30,000 peanuts) and (150 cashews, 35,000 peanuts)
Suppose X=1. Then the slope of the market demand curve is
-1/3
45.Which of the following supply and demand models for home mortgages represents what would happen if. The U.S. government began monitoring lending practices of financial institutions, making it more difficult to issue mortgages?
....
Suppose a market has the demand function Qd=20-0.5P. Between which of the following price ranges is demanded most inelastic?
$0 to $10
33.Assuming the figure represents the market for loanable funds, which of the following would represent an increase in household wealth?
A shift from line 1 to line 4
19.During the Great Depression, the aggregate price level and real gross domestic product (GDP) both decreased, as depicted in the graph. Unemployment increased to record levels. Which of the following best explains why this happened?
A stock market crash, large numbers of bank failures, an increase in tax rates, and a tight money supply caused a recession.
45.Most financial assets other than money function as
A store of value, but not a unit of account nor a medium of exchange
Demand for which of the following goods or services is likely to be the LEAST elastic in cold weather?
A sweatshirt
43.Countercyclical fiscal policy involves changing government spending in order to shift the ________ curve, while supply-side fiscal policy involves changing government spending in order to shift the ________ curve.
Aggregate demand (AD); long-run aggregate supply (LRAS)
In a market economy, supply and demand are important because they
All of the above 1. Play a critical role in the allocation of the economy's scarce resources. 2. Determine how much of each goods gets produces. 3. Can be used to predict the impact on the economy of various events and policies.
In the simple circular-flow diagram,
All of the above are correct 1. Households own the factors of production 2. Households buy all the goods and services that firms produce 3. Land, labor, and capital flow from households to firms.
14.Unemployment insurance
All of the above are correct 1. May improve the ability of the economy to match workers with appropriate jobs 2. Reduces the job search efforts of the unemployed 3. Increases the amount of frictional unemployment in the economy
GDP is equal to
All of the above are correct 1. The market value of all goods and services produced within a country in a given period of time. 2.Y. 3. C+I+G+NX
17.According to classical macroeconomic theory,
All of the above are correct.
The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair. As a result,
All of the above are correct. 1. The quantity supplied of blue jeans exceeds the quantity demanded of blue jeans at the $30 price 2. The equilibrium quantity of blue jeans exceeds the quantity demanded at the $30 price. 3. There is a surplus of blue jeans at the $30 price.
36.Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion.
An increase in government purchases of $30 billion will shift aggregate demand to the right by $68 billion.
52.When computing economic growth, changes in nominal gross domestic product (GDP) must be adjusted to reflect changes in the price level because
An increase in prices will increase nominal GDP without any actual economic growth
9.Which of the following would cause an upward movement along the aggregate demand curve?
An increase in the price level increases the value of real wealth.
46.Paper dollars
Are fiat money and gold coins are commodity money.
Which of the following statements about economic models is correct?
Because economic model omit many details, they allow us to see what is truly important
AS price elasticity of supply increases, the supply curve
Becomes flatter.
As we move left along the demand curve, the price elasticity of demand
Becomes more elastic
38.Direct finance occurs when
Borrowers go directly to savers for funds
26. What is the most appropriate way to compare budget deficits/surpluses across time?
Calculating figures as a portion of gross domestic product (GDP)
According to the circular-flow diagram, GDP
Can be computed as the total income paid by firms or as expenditures on final goods and services.
13.Public policy
Can be reduce both frictional unemployment and the natural rate of unemployment
The process of examining a change in one variable in a model while assuming that all the other variables remain constant is called
Ceteris paribus
39.Long-run aggregate supply shifts are caused by
Changes in resources, technology, and institutions.
41.Based on the figure above, what sort of policy is the government likely to pursue in this case if it wants output to equal potential output
Decrease government spending and increase taxes
44.Is a bond cannot be resold in secondary markets, the
Demand for that security will decrease
29.The correct production timeline is
Dollars are borrowed, investment occurs, and output is produced
An activity's marginal benefit is ______ at the optimal quantity.
Equal to the marginal cost
34.The marginal propensity to consume (MPC) is defined as the fraction of
Extra income that a household consumes rather than saves.
6.If aggregate demand shifts right, then in the short run
Firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.
26.You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?
Five cents x (today's CPI / 1962 CPI)
47.What is one clear benefit of foreign investment in the United States?
Foreign investment in the United States lower interest rate, creating more investment and greater future GDP.
The midpoint is used to compute elasticity because it
Gives the same answer regardless of the direction of change
42.Supply-side fiscal policy involves the use of
Government spending and taxes to affect the production side of the economy.
30. Fiscal policy refers to the idea that aggregate demand is affected by changes in
Government spending and taxes.
4.The price index used to illustrate the aggregate demand curve is the
Gross domestic product (GDP) deflator.
34.Those with the least patience
Have the greatest time preference
58.All countries have some resources and technology available to them. The ones that grow fastest are the ones that
Have the institutions in pace that allow those resources to be fully exploited
Economics is the study of
How society manages its scarce resources
53.When computing economic growth, changes in nominal gross domestic product (GDP) must be adjusted to reflect population growth because
If real GDP remains the same, an increase in the population actually means a lower average standard of living
40. The Laffer curve is an
Illustration of the relationship between tax rates and tax revenues.
16.Based on the figure, if the economy starts at point A and ends up at point E, then in the short run, there was a(n)
Increase in aggregate demand.
15. If the minimum wage is currently above the equilibrium wage, then a decrease in the minimum wage
Increases the quantity of labor demanded but decreases the quantity of labor supplied
57.Steve owns a boke shop. He wants to increase the number of bikes he sells each month, so he knows he needs to acquire more resources. Which of the following actions would represent an increase in the human capital resource at his bike shop?
Increasing the training for his employees
25. Social Security and Medicare spending continue to grow and take up larger shares of the federal budget because life expectancy is ________, the number of people receiving benefits is ________ quickly, and the growth in the number of people paying into the programs is ________.
Increasing; increasing; decreasing
48. The Fed's policy decisions have an important influence on
Inflation in the long run and employment and production in the short run.
Absolute advantage is found by comparing different producers'
Input requirements per unit of output.
30.The source of the supply of loanable funds
Is saving and the source of demand for loanable funds is investment
GDP
Is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being.
Kelly and David are both capable of repairing cars and cooking meals. Which of the following scenarios is not possible?
Kelly has a comparative advantage in repairing cars and in cooking meals.
11.Which of the following is the correct formula for calculating the labor force participation rate?
Labor Force/ Adult Population X 100
The _____ states that the opportunity cost od producing a good always rises as one produces more of it.
Law of increasing relative cost
12.Suppose that you have the following information about the economy, where all figures are in millions of dollars: Full employment output = $2,000 Consumption = $1,200 Investment = $400 Government spending = $500 Net exports = - $200 Because short-run output is ________ full-employment output, in the long run we would expect the price level to ________.
Less than; fall
49.In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then
M1 would not change.
43.Secondary markets are
Markets in which securities are traded after their first sale
56.Which of the following are the three major categories of resources?
Natural resources, physical capital, human capital
If the cross-price elasticity of demand between Good A and Good B is 2, the price of Good B increases, and the price elasticity of demand for Good B is elastic, we can expect to see a _____ change in the quantity demanded for Good A.
Negative, large
31.If there is surplus of loanable funds, then
Neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium
The production possibilities frontier illustrates
None of the above is correct
8.Which of the following shifts aggregate demand to the right?
None of the above is correct.
Transfer payments are
Not included in GDP because they are not payments for currently produced goods or services
13.The goal of monetary policy and fiscal policy is to
Offset shifts in aggregate demand and thereby stabilize the economy.
Wages are higher in country X than in Country Y. If the countries decide to trade, then who will benefit?
Only the country that can produce the product at a lower opportunity cost will benefit.
55.As financial intermediaries, commercial banks pay their expenses and earn a profit by
Paying depositors a lower interest rate than they charge borrowers.
24. Which of the following is considered mandatory government spending?
Payments to Social Security recipients
51.Economic growth equals the percent change in nominal gross domestic product (GDP) minus the
Percent change in process and the rate of population growth
"No matter the price, I will always buy five gallons of ice cream a week. I love ice cream!" This statement reflects a price elasticity of demand that is
Perfectly inelastic
Unemployment resources are evident at
Point A
14.Based on the figure, if the economy is currently at point B because of a shift in aggregate demand, then in the long run, we can expect we will move to
Point C.
"Prices rise when the quantity of money rises rapidly" is an example of a
Positive economic statement
15.If the current short-run equilibrium level of output is greater than full-employment output, we can then expect that in the long run the
Price level will rise and short-run aggregate supply will fall.
59.Why do institutions such as private property rights promote economic growth?
Private property rights create an incentive. To maximize the value of one's property, which is not true when property is collectively owned
38.Crowding-out occurs when
Private spending falls in response to increases in government spending.
41.The equation for the interest rate of a bond is
R = face value - initial price / initial price
This economy has the ability to produce at which point(s)?
R,T,U
29. The U.S. government could reduce its budget deficit by
Raising the eligible retirement age to receive Social Security benefits.
48.A nation's standard of living is best measured by its
Real GDP per person
49.Economic growth is defined as the percent change of
Real per capita gross domestic product (GDP).
2.Economic variables we are most interested in are
Real variables, but we usually observe nominal variables.
37.The three-time lags that accompany policy decisions are
Recognition lag, implementation lag, and impact lag.
Efficiency
Refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society
When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all
Rely upon one another for goods and services we consume.
Production possibilities frontiers are usually bowed outward. This is because
Resources are specialized; that is, some are better at producing particular goods than other goods.
A decrease in quantity demanded
Results in a movement upward and to the left along a demand curve.
10.Who among the following would be counted as "unemployed"?
Shasta, who is waiting to be recalled to a job from which she has been laid off.
1.Most economists use the aggregate demand and aggregate supply model primarily to analyze
Short-run fluctuations in the economy.
If the price of this good is $2.00, there would be a ____ of ____ units.
Shortage; 30
3.The aggregate-demand curve
Shows an inverse relation between the price level and the quantity of all goods and services demanded.
11.When inflation pushes up prices in the economy, input prices are ________ and revenues ________ in the short run.
Sticky; increase
Suppose that a decrease in the price of good X results in a fewer units of good Y being demanded. This implies that X and Y are
Substitute goods
The two words economists use most often are
Supply and demand
The market for diamond rings is closely linked to the market for high-quantity diamonds. If a large quantity of high-quality diamonds enters the market, then the
Supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
10. Which of the following would affect both short-run and long-run aggregate supply?
Technological change
7.The long-run aggregate supply curve shifts right if
Technology improves.
57.The M1 money supply, by definition, is the money supply.
That consists of currency, checkable deposits, and traveler's checks.
28.An important difference between the GDP deflator and the consumer price index is that
The GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.
Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that
The United States should produce more pork than what it requires and export some of it to Mexico.
31.Which of the following would be the theoretical outcome of expansionary fiscal policy in the following aggregate demand-aggregate supply model?
The aggregate demand (AD) curve would shift from AD2 to AD1.
9.Which of the following is correct?
The amount of unemployment that a country typically experiences is a determinant of that country's standard of living, and some degree of unemployment is inevitable in a complex economy.
18.Which of the following best summarizes the main causes of the Great Recession?
The collapse of housing prices led to decreased wealth and significant problems in financial markets, as well as a decrease in expected income and a stock market collapse.
35.Firms expect more sales and profits in the near figure; this would cause
The demand. For loanable funds to increase
53.The rate at which the Fed lends money to banks is
The discount rate.
What happens to the equilibrium price and equilibrium quantity of a goof if both the producers and the consumers of that good expect its price to be higher in the future?
The equilibrium price will go up and equilibrium quantity will be indeterminate.
18. What basket of goods and service is used to construct the CPI?
The goods and services that are typically bought by consumers as determined by government surveys
22. Which of the following policy statements would a Keynesian economist tend to support?
The government should intervene in the economy to promote full employment.
32. If the unemployment rate falls below the natural rate of unemployment (u*),
The government will want to conduct contractionary fiscal policy.
54.Which of the following is correct?
The level of real GDP per person is a good gauge of economic prosperity, and the growth rate of real GDP per person is a good gauge of economic progress
Consider the production possibilities frontier for an economy that produces only sofas and cars. When society moves from point A to point B,
The opportunity cost is the same as when society moves from point B to point C
50.Average world income began to rapidly rise during the industrial revolution because
The pace of technological innovation outpaced population growth
Which of the following statements about the price elasticity of demand is correct>?
The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases.
When computing the opportunity cost of attending a basketball game you should include
The price you pay for the ticket and the value of your time
17. If the minimum wage is set as $125, then
The quantity of labor supplied will equal 35
27.Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?
The real interest rate is the nominal interest rate minus the rate of inflation
If the price of rubber were to increase by 20 percent over the fiscal year and if all else were held constant, what would we expect to happen to the supply curve of tires that are sold separately from automobiles?
The supply curve would shift to the left.
32.Assuming the figure represents the market for loanable funds, it would be true that
The vertical axis represents the interest rate, and the distance between points C and D represents the shortage of loanable funds at interest rate A.
56.What effect does a bank's decision to hold excess reserves have on its balance sheet?
There would be no change to assets or liabilities.
36.The supply of loanable funds increases while the demand for loanable funds remains constant.
This would cause The equilibrium quantity. Of loanable funds. To decrease. And the. Equilibrium interest rate to increase
44.Consider the following traders who meet. Bill has an eggplant, wants a head of cabbage. Tim has a head of lettuce, wants a cucumber. Mike has a tomato, wants an eggplant. Amy has a cucumber, wants a head of lettuce. Which, if any, pairs of traders has a double coincidence of wants?
Tim with Amy
28. The U.S. national debt is purchased by entities in the form of
Treasury securities.
39.The face value of a bond is the
Value of the bond. At maturity, or the amount due at repayment
5.The aggregate supply curve is
Vertical in the long run and slopes upward in the short run.
33.During which of the following situations would the government most likely have an expansionary fiscal policy?
When the current unemployment rate is above the natural rate of unemployment
Which of these statements best represents the law of supply?
When the price of a good decreases, sellers produce less of the good.
12.All else equal, which of the following would increase the employment rate?(
ii) and (iii) only