Principles of Macroeconomics ASU-BEEBE Final

Nominal GDP differs from real GDP because

Real GDP results from adjusting for changes in the price level

Inflation tends to

Reduce the strength of the multiplier

One way to enhance the stability of the banking system is to

Require higher bank capitalization or net worth

In the circular flow model, households earn their incomes in the:

Resource markets

Suppose that an economy produces 2400 units of output, employing the 60 units of input, and the price of the input is $30 per unit. The level of productivity in this economy is

40

The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:

9 million

Money is created when

A bank grants a loan to a customer

The two ways of looking at GDP are the

Expenditures approach and income approach

Cost-push inflation tends to be characterized by all of the following except

Falling unemployment

Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy

Federal Open Market Committee

An increase in nominal GDP will

Increase the transactions demand and the total demand for money

The aggregate demand curve shows the

Inverse relationship between the price level and the quantity of real GDP purchased

The natural rate of unemployment

Is equal to the total of frictional and structural unemployment

The unemployment rate is interpreted as the percentage of the

Labor force that are not employed

One basic difference between "labor" and "entrepreneur" is that:

Labor is hired by a firm whereas the entrepreneur owns the firm.

Which of the following Fed actions increases the excess reserves of commercial banks

Lower the reserve ratio

If a nation restricts trade with other nations, then the most likely effect is:

Make consumers in the nation worse off

Lowering the discount rate has the effect of

Making it less expensive for commercial banks to borrow from central banks

Monetary policy actions by the Fed are

More effective in a restrictive direction than they are in an expansionary direction

The full employment rate of unemployment is also called the

Natural rate of unemployment

The rate of unemployment when the economy is at its potential output is called the:

Natural rate of unemployment

International specialization and trade

Often requires the exchange of currencies

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?

Open market operations

An increase in the price level, other things equal, will shift the

Consumption, investment, and net exports schedules of the aggregate expenditures model downward

One basic problem faced by central planners, but hardly present in a market system, has to do with:

Coordinating production in various industries so that bottlenecks do not develop.

The "invisible hand" concept refers to the

Guiding function of prices in a market system

The crowding out effect from government borrowing to finance the public debt is reduced when

Public investment complements private investment

In the circular flow diagram, firms get their ability to pay for the costs of production from the:

Revenues they receive for their products

The service a homeowner performs when she mows her yard is not included in GDP because

This is a non market transaction

Which of the following bank related policies of the Fed fosters huge moral hazard problems

Too-big-to-fail policy

When the interest rate falls, the

Total amount of money demanded increases

GDP tends to overstate economic well-being because it takes into account:

Total spending to deal with the adverse health effects of some products

Lowering the reserve ratio

Turns required reserves into excess reserves

Official unemployment rate statistics may

Understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment

One essential trade-off involving business risk which the market system provides is reflected in which of the following?

Access to the firm's profits and gains are open only to those who take on the business risk of the firm

Loans of the Federal Reserve Banks to commercial banks are

An asset of the Federal Reserve Banks and a liability for commercial banks

Money is not considered to be an economic resource because:

As such it is not productive

Contractionary fiscal policy would tend to make a budget deficit become

Smaller

A fall in labor costs will cause aggregate

Supply to increase

Inflation is a rise in

The general level of prices over time

CPI compiled by the Bureau of Labor Statistics is used to computations for

The inflation rate

The higher the rate of unemployment

The larger is the GDP gap

Mia wants to buy a book. The economic perspective suggests that Mia will buy the book if:

The marginal benefit of the book is greater than its marginal cost

A decrease in aggregate supply means

The real domestic output would decrease and the price level would rise

Checkable deposits are included in

both M1 and M2

When the Federal Reserve acts to tighten money and credit in the economy, it is trying to reduce

the inflation rate

Lauren makes $150 a day as a bank clerk. She takes two days off without pay, to fly to another city to attend the concert of her favorite band. The cost of transportation and lodging for the trip is $250. The cost of the concert ticket is $50. The opportunity of Lauren's decision to attend the concert is:

$600

When the interest rate in the economy was 10%, the price of a bond with no expiration date and pays a fixed annual interest of $500 was $5000. If the interest rate in the economy falls to 6%, the price of this bond will be about

$8333

If the Consumer Price Index was 125 in one year and 120 in the following year, then the rate of inflation is approximately

-4.0 percent

The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in the economy is:

166.5

Specialization is beneficial;

At the individual, regional, and even international levels

One major element of the command system is:

Central Planning conducted by the government

One major element of the command system is

Central planning conducted by the government

Money supply M1 does not include the currency held by

Commercial banks

The built in stabilizers in the economy tend to

Dampen the irregular swings in real GDP

Check-able deposits are

Debts of commercial banks and savings institutions

A decrease in government spending will cause

Decrease in aggregate demand

Cost-push inflation is characterized by a(n)

Decrease in aggregate supply and no change in aggregate demand

In a market system, resources will move away from an industry when:

Demand for the industry's product is decreasing

The US economy was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate

Demand increased and aggregate supply increased

Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is

Demand pull inflation

A federal budget deficit exists when

Federal spending exceeds tax revenues in a given year

In a market system, as one industry expands while another contracts, resources will flow:

From one industry due to the changes in resource prices paid by firms

The crowding-out effect arises when

Government borrows in the money market, thus causing an increase in interest rates

A budget surplus means that

Government revenues are greater than expenditures in a given year

An increase in productivity will

Increase aggregate supply

If the price of crude oil decreased then this would most likely

Increase aggregate supply in the US

A decrease in the interest rate will cause an

Increase in the amount of money held as an asset

A decrease in interest rates caused by a change in the price level would cause a(n)

Increase in the quantity of real output demand for movement down along AD

If a nation is operating at a point inside the production possibilities curve, it indicates that the nation could:

Increase its production of both goods X and Y simultaneously

When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the Federal funds market

Increases and the Federal funds rate decreases

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy

Is not subject to the timing problems of discretionary policy

GDP measured using current prices is called

Nominal GDP

The GDP deflator or price index equals

Nominal GDP divided by real GDP

The unemployed are those that are

Not employed but are seeking work

The largest expenditure component of GDP is

Personal consumption expenditures

The GDP gap measures the amount by which

Potential GDP exceeds actual GDP

In a market system, self-interest is the motivating force that:

coordinates and creates consistency in the operations of various parts of the economy

If the dollar depreciates in value relative to foreign currencies, then aggregate

demand increases

If a nation produces more consumer goods and less capital goods, then the nation will have

more consumption now, but less consumption later

In analyzing human decision and actions, economists assume that

people's behavior reflects rational self-interest