Macroeconomics Final Study Guide
Which of these is NOT a public good?
shirts at a clothing store
(Table) The table shows data on consumption at various levels of income. Assume there is not private investment. The value of the APS at equilibrium is
0.00
If disposable income increases from $250 to $300 and saving increases from $40 to $50, how much is the average propensity to save when disposable income is $300
0.167
(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals
0.2
Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $30 billion. These economists would estimate that the marginal propensity to save is
0.33
Since the invention of automatic teller machines, many bank tellers have lost their jobs. This is an example of _____ unemployment.
structural
(Table: Consumption and Savings) Based on the table, the marginal propensity to consume is ________ and the average propensity to consume ____________
0.5; varies with the level of income
If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter in a given year, then the actual growth rate from the first quarter to the second quarter was
0.625%
If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was:
0.625%
The formula for the simple spending multiplier is
1/(1 - MPC).
There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force?
10 million
(Table) The associated table provides a hypothetical bundle of goods. If 2014 is the base year, the value of the CPI in 2017 would be
108.97
(Table) Suppose the Bureau of Labor Statistics collects the data presented in the following table
125
(Table) According to the table, the number of people in the labor force is
140
Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is
150
If an economy's GDP will double in 25 years, then its growth rate must be about
2.8%
Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is
3%
Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a local elementary school. She began looking for a full-time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is
employed
Frictional unemployment occurs when job openings
exist, and people are willing to take them, but it takes some time to bring the two together.
The two approaches used by the government in estimating GDP are
expenditure and income
Synthetic clothing releases fibers during the washing process, which then end up poisoning rivers, lakes, and oceans. Fish and other wildlife consume the microfibers, accumulating toxins in their bodies that can become concentrated as they travel up the food chain. The production of synthetic clothing is an example of market failure due to
external costs
Which of these is NOT a problem in using GDP to measure standards of living?
failure to include exports and imports
A price ceiling usually results in a surplus and a misallocation of resources.
false
When household debt levels rise
families are less able to spend in the current period.
Inflation is a
general rise in prices
Thomas Malthus believed that population increased _____ and food resources increased _____.
geometrically; arithmetically
If short-term interest rates become larger than long-term interest rates, the yield curve becomes _____ sloped, and the chance of a recession becomes _____ likely.
negatively; more
If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) ________ in spending equal to _________ is needed to close the gap.
recessionary; increase; $100
Many communities require that an inspector evaluate a house before it can be sold. This requirement
reduces the problem of asymmetric information.
If the marginal propensity to consume is 0.6, the marginal propensity to save is 0.4, and government spending increases by $2 billion at the same time taxes rise by $2 billion, equilibrium income will
rise by $2 billion
When the economy is in equilibrium in the simple Keynesian model
saving is equal to investment
(Figure: Consumption Spending) At point A in the graph provided
saving is zero
(Table Macroeconomic Data for Econoland) Look at the table. When is Econoland experiencing a double-dip recession?
second and third quarters of 2016
The marginal propensity to consume is equal to the change in consumption divided by the change in income.
true
Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is
$0.1 trillion
Suppose the government believes consumers should spend $1 billion more to get the economy out of a recession. The government wants to provide income to households by providing them with jobs and paying them directly. If the marginal propensity to consume is 0.8, the government should increase income by
$0.2 billion
(Table) According to the table, when using the expenditure approach, GDP is
$1,770 billion
What is real GDP in 2010 dollars if nominal GDP in 2014 is $15,000 billion; the GDP deflator in 2014 is 110; and the GDP deflator in 2010 was 100?
$13,636 billion
The price of green grapes increases from $1.90 to $2.30 per pound. When this happens, the amount of grapes sold drops from 500 pounds to 400 pounds. Assuming that the demand and supply of grapes is held constant, what is the value of the loss of consumer surplus that occurred?
$180
In the nation of Economia, the economy is overheating and there is danger of inflation. The chief economist estimates that current income is $50 billion, the optimal level is $40 billion, and the multiplier is 4. If government wants to close the inflationary gap, it should reduce government spending by
$2.5 billion
(Table) Suppose a loaf of bread goes through the following stages of production, with the values noted at the end of each stage.
$2.65
(Figure: Determining Surplus 6) Using the graph, we can calculate the maximum possible producer surplus as
$20,000
(Figure: Determining Surplus 6) Using the graph, we can calculate the maximum possible consumer surplus as
$20,000.
In the simply Keynesian model with no government or foreign sectors, assume that full employment occurs at an output level of $10,000. With a marginal propensity to consume of 0.5 and equilibrium output at $9,600, by how much will investment spending have to increase to move the economy to full employment?
$200
Alexa purchased a new bag for $150, although she was willing to pay $175. The minimum price acceptable to the seller, Paige was $145. The results of this transaction are a consumer surplus of
$25 and a producer surplus of $5
Suppose the actual price for good A is $20. John is willing to pay $30, Susie is willing to pay $28, Joseph is willing to pay $25, Jessica is willing to pay $23, and Jeremy is willing to pay $21. What is total consumer surplus?
$27
A guitar is produced in California using $100 in raw materials and sells for $300 in a guitar shop. Each guitar that is produced contributes _____ to U.S. GDP.
$300
A piano is produced in Kansas using $100 in raw materials and sells for $300 in a piano shop. Each piano that is produced contributes ___________ to U.S. GDP
$300
During the Y2K scare of 2000, Rufus reduced his monthly spending by $1,000 and buried his money in the backyard. If the marginal propensity to consume is 0.75, by how much did national income fall?
$4,000
Company DEF produces gizmos. One particular batch cost $50,000 to produce. Because market conditions were bad at the time of sale, they were sold at a loss for $40,000. The value of the gizmos included in the GDP is
$40,000.
Jill has an escalator clause in her labor contract that gives her a raise equal to the change in the consumer price index (CPI). Last year she earned $40,000 and the CPI was 100. If the CPI this year is 110, her new salary is
$44,000.
(Table) According to the table, nominal GDP for 2013 is approximately
$7,692 billion
(Table) According to the table, nominal GDP for 2013 is approximately
$7,692 billion.
(Figure: Understanding Price Ceilings and Floors) In the graph, which price would NOT allow for a binding price ceiling?
$75
Suppose that a customer's willingness-to-pay for a product is $1,480, and the seller's willingness-to-sell is $1,210. If the negotiated price is $1,300, how much is producer surplus?
$90
(Table) According to the table, what is the value of this country's net exports?
-$35
(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals ________, the MPC equals _________, and the APC equals __________.
-$80; 0.6, 1.27
(Table) When disposable income is $1,200, what is the value of the average propensity to save?
-0.083
If output equals A × (5K + 2L), what is output if A equals 2,000, capital equals 10, and labor equals 100?
500,000
An economy has a population of 226,500 people, of whom 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is
6.5%
What share of U.S. GDP is consumption?
68%
Which of these would be an example of a situation associated with short-run economic growth?
A country reports that employment rises by 200,000 workers, reducing the unemployment rate.
Which is one of the four major reasons markets fail?
A mismatch of information
(Figure: Understanding Price Ceilings and Floors) In the graph, if the government sets a maximum price of $25, there is a surplus of 600 units.
False
Which equation is correct?
AE = C + I + G + (X - M)
According to the simple Keynesian model, which statement is NOT correct?
APC + MPS = 1
As a country's economy grows and real GDP per capita rises, citizens often do not feel proportionately better off. Which statement provides a logical explanation for this?
As incomes rise, households may use the extra income to buy services and goods that they used to produce for themselves; thus, even though GDP is higher, how much they actually consume is not higher.
Which situation could keep a market from ending up in equilibrium?
Buyers have inadequate information about products.
What impact will a rising price level have on real GDP?
Changes in the price level do not impact real GDP.
The Leading Economic Index is produced by the
Conference board
The United States has an aging population, and as a result, the need for nursing services has increased. All other things being equal, what has happened in the market for nursing services, assuming the market sells at the equilibrium price?
Consumer surplus will be larger after the increase in demand.
Which group is hurt by inflation
Creditors
(Table) According to the table, which country is likely to have the lowest returns to investment in capital?
Croland
Which is an example of producer surplus?
Dustin was willing to sell his old bicycle $90, so he was overjoyed that Blake was willing to pay $118 for it.
(Table) According to the table, in which country did the capital-to-labor ratio rise by the most from year 1 to year 2?
Econia
(Table) According to the table, which country was MOST likely to experience catch-up growth?
Econia
The GDP of the country Econia is $100 billion with the following components: C = $50 billion, I = $15 billion, G = $30 billion, and (X - M) = $5 billion. Which of these would have the largest immediate impact to increase Econia's GDP?
Exports rise by $4 billion.
Crude oil produced in Nigeria by Exxon-Mobil, a company whose headquarters are located in the United States, would be included in U.S. GDP.
False
Disinflation is a decline in overall prices throughout the economy
False
Ethan Avalon sells brownies to his classmates at K-State for cash. His income from this product is probably NOT part of the informal economy
False
External costs increase deadweight loss, while external benefits reduce deadweight loss.
False
Full employment is not considered to be the equivalent of the natural rate of unemployment
False
Jasmine works in her family's boutique 16 hours a week and is considered an unpaid family member. Since she is not paid for her services, she is not in the labor force.
False
Nonrivalry means that once a good is provided, others cannot be excluded from enjoying it.
False
Over the past few decades, net exports in the United States have been a positive percentage of GDP.
False
Small differences in growth rates do not lead to large overall differences in income over time.
False
Soybeans produced in Brazil, but eaten by cows in a Kansas feedlot, will be included in U.S. GDP.
False
The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.
False
The relationship between the amount of inputs used in production and the amount of output produced is called an output function.
False
Total surplus is the sum of consumer surplus, producer surplus, and deadweight loss.
False
When Andrea was a poor college student, she changed the oil in her car herself. Now that she has a job, she takes her car to her mechanic to have the oil changed. GDP is not affected by this change.
False
When investors believe an economic slowdown is likely, they buy short-term bonds to lock in interest rates.
False
The broadest measure of inflation is the
GDP deflator
Martin purchases 500 shares of stock in ABC Company at a price of $10 per share. He pays his stockbroker a commission of $50 for helping with the transaction. How much does GDP change as a result of Martin's commission payment?
GDP rises by $50
Martin purchases 500 shares of stock in ABC Company at a price of $10 per share. He pays his stockbroker a commission of $50 for helping with the transaction. How much does GDP change as a result of Martin's commission payment?
GDP rises by $50.
Christian Evans purchases 600 shares of stock in IBM Company at a price of $10 per share. He pays his stockbroker a commission of $60 for helping with the transaction. How much does GDP change as a result of Christian's commission payment?
GDP rises by $60
Which of these would be considered frictional unemployment?
I only
Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of these statements is TRUE?
Jennifer's purchasing power will decline by 2%.
(Table) According to the table, who will have higher real GDP per capita in 11.67 years?
Macia because its starting level is high enough that Ecoland will not have enough time to catch up
(Table) Look at the table of data for two countries. Which statement correctly identifies the country in which consumers are better off on average and why?
Macroland because its consumption purchases per capita is higher
Jamestown offers a free community bus service to anyone wishing to use it. Is this service a public good?
No, it is not a public good because there are only a limited number of seats on each bus, which can fill up.
(Table) According to the table, which country will have the lowest real GDP per capita in 23.67 years?
Nomia
On-the-job training can lead to an increase in the
Quality of the labor force
(Figure: Market in Equilibrium) In the market in the figure, if price rises from $2.50 to $4.00, then total surplus will
Rise by $35
Robert lost his job and now takes care of his children while his wife works. He would take a job similar to the one he lost if it were offered, but he is not actively seeking work. How is Robert categorized in the unemployment figures?
Robert is not part of the labor force.
Which change is likely to increase wages the MOST in a country?
The capital-to-labor ratio rises by 2%
Suppose the market for soybeans crop has an effective price floor. Then poor weather causes the market supply to decrease. What impact does this have on the effectiveness of the price floor in the market, ceteris paribus?
The effectiveness of the price floor will be reduced
Suppose the market for an agricultural crop has an effective price floor. Then poor weather causes the market supply to decrease. What impact does this have on the effectiveness of the price floor in the market, ceteris paribus?
The effectiveness of the price floor will be reduced.
Collegetown's unemployment rate is 5%. After graduation, students who previously did not work actively seek jobs but only 80% find work right away. The rest continue to actively look for jobs. How does Collegetown's labor force participation rate and unemployment rate change?
The labor force participation rate increases and the unemployment rate increases.
In 2019, a market basket of goods and services cost $100 in Maryland while the same basket cost $200 in Colorado. In 2020, the cost in Maryland was $150 and in Colorado, the cost was $225. Based on the given information, which statement is TRUE?
The rate of inflation is four times as large in Maryland as in Colorado
In 2009, a market basket of goods and services cost $100 in Merryland while the same basket cost $200 in Berryland. In 2010, the cost in Merryland was $150 and in Berryland, the cost was $225. Based on the given information, which statement is TRUE?
The rate of inflation is four times as large in Merryland as in Berryland.
Whispering Valley Furniture hires five employees working eight hours each to produce 80 rocking chairs. Rocky Gap Furniture hires 10 employees working eight hours each to produce 160 rocking chairs, Which company's workers are more productive?
The two companies' workers are equally productive
Whispering Valley Furniture hires 5 employees working eight hours each to produce 80 rocking chairs. Rocky Gap Furniture hires 10 employees working eight hours each to produce 160 rocking chairs. Which company's workers are more productive?
The two companies' workers are equally productive.
If 50 workers from a restaurant going out of business lose their jobs and they all immediately begin to work part-time driving for Uber or Lyft while seeking new restaurant jobs, how will this affect the unemployment rate?
The unemployment rate would not change.
(Figure: Aggregate Expenditures) The figure shows the aggregate expenditures for an economy. Which is the proper sequence of events if income was originally at $100?
Total spending exceeds income, firms expand productions, workers are hired, and incomes rise until equilibrium is reached.
(Table) According to the table, in which country did the capital-to-labor ratio rise by the most from year 1 to year 2?
True
A $20 minimum price on a taxi fare is an example of a price floor.
True
Breck is in a training program to become a radiology technician, that is, someone who takes diagnostic images, such as x-rays. When he is certified, the amount of human capital in the economy will increase.
True
Free trade refers to the ability to buy and sell products with other countries without significant barriers, such as tariffs or quotas.
True
Full employment is considered to be the equivalent of the natural rate of unemployment.
True
Gross private domestic investment is a key factor behind economic growth in the United States.
True
It is preferable to use real GDP as opposed to nominal GDP, as an indicator as to how an economy grows over time.
True
Laissez-faire is a French term that means "let it be."
True
Sheila charges $100 to proof term papers for other college students. She does not declare this income on her tax return. Sheila is part of the informal economy.
True
Shortcomings of the national income and product accounts include ignoring nonmarket transactions, such as the value of your labor within your own home (e.g., the value of cooking your own dinner).
True
The phases of the business cycle vary in duration and intensity.
True
The National Activity Index was developed by the
U.S. treasury
If your goal was to have the largest amount of money in your bank account as possible in two years, which option would you choose? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years.)
a beginning deposit of $930, earning 8% per year
The value of cars that the Ford Motor Company produces in a German plant is
a part of German GDP.
The GDP deflator for the base year is
always equal to 100
Car tracking GPS systems make it easier for police to catch a car thief who has stolen you car. these locks represent _____________ to other car owners because they enable the police to capture a thief that might steal their cars
an external benefit
If a city government were to impose a price ceiling to bring down rental prices of apartments in the downtown area
an illegal rental market would likely emerge.
Retirees and creditors
are hurt by inflation because their purchasing power is reduced.
Consumer surplus is shown graphically as the area _____ the market price.
below the demand curve and above
If a price ceiling is set below the market price, it is
binding
Which group of economists believed that economic downturns were self-correcting such that the forces of supply and demand would naturally bring the economy back to equilibrium?
classical economists
The difference between the demand curve and the market price is called
consumer surplus.
A tax increase has a smaller impact on the economy than does a decrease in government spending of the same magnitude because
consumers pay for part of the tax increase by reducing their savings.
In the Keynesian framework, the way to fight a recession is to
cut taxes and/or increase government spending.
Decreases in government spending _____ equilibrium income, and increases in taxes _____ equilibrium income.
decrease; decrease
In the United States, people are considered unemployed if and when they
do not have a job but are available for work and have been actively seeking work.
GDP measures the final value of goods and services produced to avoid the problem of
double counting
Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago. If the consumer price index the year Dave begins work is 180.5 while the consumer price index the year his dad started work was 110.8, Dave is
incorrect; adjusting for price changes, his salary is less than his dad's salary.
If the marginal propensity to consume is 0.8, full-employment output is $14 trillion, and current output is $13.5 trillion, then investment spending must ________ to reach full-employment output.
increase by $0.1 trillion
According to the production function, which of these changes will NOT result in economic growth?
increases in consumption spending
(Table) The associated table provides a hypothetical bundle of goods. If 2014 is the base year, the economy is experiencing _____ in 2017.
inflation
In the absence of copyright and patent laws
it is difficult for innovators to profit from their efforts.
The _____ is the change in consumption associated with a change in income.
marginal propensity to consume
A price ceiling is a legally mandated _____ which goods or services cannot be sold.
maximum price above
A production function says output per worker equals Axf(L/L, K/L, H/L, N/L) and tells us all of these EXCEPT __________ will lead to a better standard of living
more people
In 2016, some counties in Florida sprayed for mosquitos in an effort to combat the Zika virus. The mosquito abatement program is considered a public good because
mosquito abatement exhibits nonrivalry and nonexclusivity.
The classical form of the production function states that
output = f(L, K)
GDP includes outputs produced _____ but it does NOT include outputs produced _____.
outside the United States by U.S. citizens; inside the United States by foreign citizens
GNP includes output produced _____, but it does NOT include output produced _____.
outside the United States by U.S. citizens; inside the United States by foreign citizens
The government sets a maximum price of gasoline at $2 a gallon. This is an example of a
price ceiling
In the Keynesian aggregate expenditures model, which variable is assumed to be fixed?
price level
The difference between market price and the price at which sellers would be willing to supply the product is
producer surplus
A benefit of using GDP per capita instead of GDP is that GDP
takes into account the size of the population when measuring the value of the goods and services a country produces.
Which occurrence is the key explanation for the high economic growth in the United States in the past century?
technology improvements
The single largest consumer of goods and services in the United States is
the government
Hyperinflation is usually caused by
the government printing money to finance budget deficits.
If a country's population increases at a higher rate than the growth rate of its real GDP
the standard of living in the country has decreased.
At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water
the standard of living of the citizens of Pittsburgh has increased, even though the improvement in the environment was not reflected in its GDP.
Zach has been laid off from his job as an aircraft worker. He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is
unemployed
Activities that remove spending from the economy are called
withdrawals