Practice Tests Macro Final
An increase in real GDP ______ the demand for money and financial technology ______.
increases; can increase the demand for money or decrease the demand for money
The supply of loanable funds increases when disposable income______ or wealth ______.
increases; decreases
Markets are a necessary precondition for economic growth because ______.
market prices send signals to buyers and sellers that create incentives
In an expansion, the expected profit rate ______ and, other things remaining the same, the demand for loanable funds ______.
rises; increases
All of the following statements are included in new growth theory except ______.
the forces of competition destroy incentives to make new discoveries
A government budget surplus ______ the real interest rate and ______ investment.
lowers; increases
An increase in disposable income, other things remaining the same, ______ the equilibrium real interest rate and ______ the equilibrium quantity of loanable funds.
lowers; increases
An economy's business cycle is a continuous series over time of different ______.
macroeconomic equilibriums
When the price level rises but the money wage rate remains unchanged, unemployment ______ and the quantity of real GDP supplied ______.
decreases; increases
Diminishing returns do not limit growth in new growth theory because ______.
many people can use discoveries at the same time
The price of a bond ______, and the interest rate ______.
rises; falls
According to Peter Howitt of Brown University, if inflation is lowered from 3 percent a year to zero, then in 30 years the accumulated value of all additional output produced would be worth ______ percent of current GDP.
85
Peter Howitt of Brown University has estimated that if inflation is lowered from 3 percent a year to zero, then after 30 years, real GDP would be ______ percent higher.
2.3
Choose the statement that is incorrect.
A rise in the real interest rate increases the opportunity cost of the financial capital and decreases the demand for loanable funds.
Which of the following items are examples of fiscal policy that increase aggregate demand?
An increase in government expenditure, a decrease in taxes, and an increase in transfer payments.
Choose the statement about classical growth theory that is incorrect.
Capital does not experience diminishing returns.
T or F: Along the AS curve, a change in the price level brings an equal percentage change in the money wage rate.
False
T or F: Along the potential GDP line the money wage rate is constant and the real wage rate rises as the price level rises.
False
T or F: An increase in the inflation rate decreases the true tax rate on interest income.
False
T or F: The higher a household's expected future income, other things remaining the same, the more it saves today.
False
T or F: The real interest rate is dependent on the inflation rate in the long run.
False
______ is an example of a place where there is economic freedom and rapid economic growth but not democracy.
Hong Kong
______ sees the economy as a perpetual motion machine.
New growth theory
Is economic freedom the same as democracy?
No. Economic freedom does not have to occur in a democracy.
Choose the correct statement. 1. Early human societies based on hunting and gathering experienced economic growth. Early human societies based on hunting and gathering experienced economic growth. 2. The presence of an incentive system and the institutions that create it guarantees that economic growth will occur. The presence of an incentive system and the institutions that create it guarantees that economic growth will occur. 3. Clearly established and enforced property rights provide people with the incentive to work and save. Clearly established and enforced property rights provide people with the incentive to work and save. 4. No unique political system is necessary to deliver economic freedom. No unique political system is necessary to deliver economic freedom.
Statements 3 and 4 are correct
Which of the following is NOT a key reason why economic growth is either absent or slow in some societies?
The absence of low taxes
An economy has a recessionary gap. With no change in aggregate demand, how does the economy return to full employment?
The money wage rate falls, aggregate supply increases, and the price level falls.
T or F: Inflation is a tax on holding money.
True
T or F: The increased uncertainty of inflation misallocates resources.
True
T or F: The price of a bond and the nominal interest rate on the bond are determined simultaneous.
True
Real GDP growth rate = ______.
[(Real GDP in current year − Real GDP in previous year) ÷ Real GDP in previous year] × 100
When real GDP decreases, ______.
a decrease in the demand for money occurs
Which of the following are examples of monetary policy that decrease aggregate demand?
a decrease in the quantity of money and an increase in interest rates
The price of a bond _____ and the interest rate ______.
rises; falls
The gap in the graph is ______ because ______.
a recessionary gap; potential GDP exceeds real GDP
The business cycle occurs because ______.
aggregate demand and aggregate supply fluctuate, but they don't always fluctuate by the same amount and in the same direction
When investment increases, _______
aggregate demand increases and income increases. The increase in income induces an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment
The "shoe-leather costs" of inflation are costs that arise from ______.
an increase in the velocity of circulation of money
An economy is at full employment. An increase in aggregate demand creates _____ gap. A change in the money wage rate decreases _____ and returns the economy to a full-employment equilibrium.
an inflationary; the quantity of real GDP demanded
Over time, ______.
both the demand for loanable funds and the supply of loanable funds trend upward, but the real interest rate has no trend
Loanable funds are used to finance ______.
business investment, a government budget deficit, and international investment or lending
At the end of 2007 a student has $400 in a bank savings deposit that is earning an interest rate of 99 percent a year. If the student leaves the interest earned in the savings account, his deposit will have grown to $800 ______.
by 2015
The central novel proposition of new growth theory is that ______ experience diminishing returns.
capital does not
South Africa's aggregate supply ______ when money wage rates increased money wage rates increased.
decreased
Other things remaining the same, a rise in the foreign exchange rate of the U.S. dollar ______.
decreases U.S. aggregate demand
A rise in the money wage rate when the economy is at potential GDP ______.
decreases aggregate supply because a rise in the money wage rate increases costs, so firms employ fewer workers
When the Chinese yuan strengthens against the U.S. dollar, China's aggregate demand ______.
decreases and China's AD curve shifts leftward
When the United States goes into recession, China's aggregate demand ______.
decreases and China's AD curve shifts leftward
When the price level in South Africa increased, South Africa's aggregate supply ______.
didn't change, but as the price level increased the quantity of real GDP supplied increased
When the price level in Japan rises, Japan's aggregate demand ______.
does not change, but the quantity of real GDP demanded decreases and a movement up along the AD curve occurs
According to classical growth theory, when real GDP per person ______, the population grows.
exceeds the subsistence level
When the quantity of loanable funds supplied ______ the quantity of loanable funds demanded, the real interest rate falls to eliminate the ______ of funds.
exceeds; surplus
Other things remaining the same, a country or region that adopts free international trade (for example, Hong Kong) has a faster economic growth rate than a country that restricts international trade (for example, Myanmar) because free international trade ______.
extracts all the available gains from specialization and trade
Bond prices ______ and the interest rate will ______.
fall; rise
The interest rate on a financial asset ______.
falls as the price of the asset rises
A decrease in wealth will ______ the supply of loanable funds and ______.
increase; and shift the supply of loanable funds curve rightward
An increase in disposable income will ______ the supply of loanable funds and the adoption of new technology will ______ the demand for loanable funds. The equilibrium real interest rate ______.
increase; increase; might rise, fall, or stay the same
When U.S. businesses established branches in South Africa, in the short run, South Africa's aggregate supply ______.
increased
A government budget deficit __________ the demand for loanable funds.
increases
A government budget surplus _________ the supply of loanable funds.
increases
When Japan adopts an expansionary fiscal policy and cuts taxes, Japan's aggregate demand ______.
increases and the AD curve shifts rightward
When growth in the Asian economies is strong, Japan's aggregate demand ______.
increases and the AD curve shifts rightward
When Japanese and European firms establish new plants in China, China's aggregate demand ______.
increases and China's AD curve shifts rightward
As the price level rises, firms respond in the short run to the change in the real wage rate by ______.
increasing production
The real interest is ______ the inflation rate in the long run.
independent of
Stagflation ______.
is a combination of recession and inflation.
After the increase in the quantity of money, at an interest rate of 7 percent a year, people want to hold _____ so they _____ bonds.
less money than the quantity supplied; buy
After real GDP decreases, at an interest rate of 9 percent a year, people want to hold _____ money so they _____ bonds.
less; buy
After the banks introduce the described changes, at an interest rate of 55 percent a year, people want to hold _____ money so they _____ bonds.
less; buy
The ______ determines the equilibrium real interest rate.
loanable funds market
A fall in the real interest rate will bring a ______ the demand for loanable funds curve.
movement down along
The demand for money is the relationship between the quantity of money demanded and the ___________ rate when all other influences on the amount of money that people wish to hold remain the same.
nominal interest
According to new growth theory, ______.
our unlimited wants will lead us to ever greater productivity and perpetual economic growth
Loanable funds come from ______.
private saving, a government budget surplus, and international borrowing
An increase in expected profit, other things remaining the same, ______ the equilibrium real interest rate and ______ the equilibrium quantity of loanable funds.
raises; increases
The economic growth rate is the annual percentage change of ______.
real GDP
The ______ is the opportunity cost of consumption expenditure.
real interest rate
The ______ is the opportunity cost of the funds used to finance the purchase of capital.
real interest rate
Between 1909 and 2009, the average growth rate of real GDP per person in the United States was 2 percent a year. During this period, ______ grew at a faster rate than ______.
real GDP; the population
When the nominal interest rate rises, the opportunity cost of holding money ______ and the quantity of money demanded ______.
rises; decreases
The Canadian economy is at full employment. The world economy goes into a strong expansion. In the long run, the money wage rate ______ and aggregate supply ______.
rises; decreases as the economy returns to potential GDP
The price of a bond _____ and the interest rate _____.
rises; falls
The Canadian economy is at full employment. The world price of oil tumbles. In the long run, the money wage rate ______ and aggregate ______.
rises; supply decreases as the economy returns to potential GDP
When the interest rate rises, other things remaining the same, the opportunity cost of holding money ______ and the ______.
rises; quantity of money demanded decreases
The three groups of markets for financial capital are ______.
stock markets, bond markets, and loans markets
According to the Ricardo-Barro effect, ______.
taxpayers increase their saving by an amount equal to the government budget deficit
As an economy moves up along its aggregate supply curve, ______.
the money wage rate and the money prices of other resources remain constant
An increase in the price level when the money wage rate remains unchanged increases ______.
the quantity of real GDP supplied
As we move up along the potential GDP line, ______.
the real wage rate remains constant
If the Fed changes the quantity of money, the immediate effects are on ______ and the long-run effects are on ______.
the short-term nominal interest rate; the price level and the inflation rate
A government budget deficit ______ the real interest rate and ______ investment.
raises; crowds out
The Canadian economy is at full employment. Canadian businesses expect future profits to rise. In the long run, the money wage rate ______, aggregate ______.
rises; supply decreases as the economy returns to potential GDP