ALL 3 MACRO TESTS - use for final
Norway and the U.S. each produce computers and cheese according to the following schedule: Computers Cheese United States 10,000 20,000 Norway 12,000 8,000 1. Which country has the absolute advantage in computers? 2. Which country has the absolute advantage in cheese? 3. Which country has the comparative advantage in computers? 4. Which country has the comparative advantage in cheese? 5. Comparative advantage is based on what kind of economic costs? 6. Which of the following statements best reflects this situation? 7. Who would be most likely to recommend to these two nations that they engage in trade? 8. In what product should Norway specialize? 9. In what product should the United States specialize? 10. What is the lowest acceptable price for computers? 11. What is the highest acceptable price for computers? 12. What is the lowest acceptable price for cheese? 13. What is the highest acceptable price for cheese?
1. Norway 2. United States 3. Norway 4. United States 5. Opportunity costs 6. Regardless of whether a country has one or two of the absolute advantages, both countries can benefit from trade. 7. Almost all economists 8. Norway should produce 12,000 computers 9. The US should produce 20,000 cheese. 10. 2/3 cheese 11. 2 cheese 12. 1/2 computer 13. 3/2 computers
Categorize the following items as either an asset of the Fed or a liability of the Fed. 1. U.S. government securities 2. Federal Reserve notes 3. Loans to depository institutions 4. Depository institution deposits The monetary base is equal to ______.
1. asset 2. liability 3. asset 4. liability the Fed's liabilities together with coins issued by the Treasury
Click on the icon to study Economics in the News. Then answer the following questions. 1. To keep pace with a growing population, approximately _______ jobs must be created each month. 2. Normally when the pace of job creation exceeds the increase in population, the unemployment rate _______. 3. When the pace of job creation exceeds the increase in population, the unemployment rate sometimes increases because _______. 4. We would expect the labor force participation rate to _______ in response to job creation in excess of population growth. 5. We would expect an increase in the growth rate of real GDP to _______ jobs and _______ unemployment.
1. 200,000 2. falls 3. discouraged workers return to the labor force 4. increase 5. increase; decrease
An economy has a consumption function of C = 10 + 0.8Y, investment of 6, government expenditure of 10, exports of 10, and an import function of M = 0.1Y. If government expenditure increases to 15, what is the increase in equilibrium expenditure?
16.65
The table gives information about the labor market in July 2014 in the economy of Sandy Island. What is the unemployment rate and the employment-to- population ratio in July 2014? Calculate the number of people unemployed, the number employed, and the unemployment rate at the end of August 2014. In July 2014: The unemployment rate is ______ percent. The employment-to-population ratio is _______ percent. At the end of August 2014: The number of people unemployed is ________. The number of people employed is _______. The unemployment rate is ________ percent.
16.7 55.6 1880 10,020 15.8
An economy has a consumption function of C = 15 + 0.7Y, investment of 8, government expenditure of 12, exports of 20, and an import function of M = 0.2Y. What is the multiplier for this economy?
2
Refer to the following graph, which represents Alice's Production Possibilities Frontier. At which levels of production is Alice producing inefficiently?
200 units of lemonade and 50 units of pizza
The Current Population Survey reported the following situations in July 2014t: • Sarah works 10 hours a week at McDonald's. She is available to work more hours but hasn't looked for extra work. • Kevin spent the first six months of 2014 actively searching for a job but he didn't get hired. He believes there are no jobs, so he has given up looking. 3. How will the unemployment rate change if Sarah quits and starts to search for a full-time job? The unemployment rate will _____ if Sarah quits and starts to search for a full-time job. 4. How will the labor force participation rate change if Kevin starts creating football apps in his garage and they turn out to be very popular? The labor force participation will _____ Kevin starts creating football apps in his garage and they turn out to be very popular.
3. rise 4. rise
Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table to the right. She would have to hire a worker for those hours at a wage rate of $12 per hour. Using marginal analysis, determine how many hours should Eva extend her bakery's hours of operations?
4 hours
The figure shows the flows of expenditure and income in an economy. In 2014, flow D was $3 trillion, flow E was −$0.7 trillion, flow A was $13.3 trillion, and flow C was $2 trillion. Calculate consumption expenditure. In 2014, consumption expenditure is $___ trillion
9
The Population Survey in Blogsville for the past month is given in the table: In Blogsville last month, ______ million people were in the labor force and ______ million people were in the working-age population.
98; 135
Choose the correct statement.
A credit card is not a means of payment.
________ behavioral assumption about humans was that people usually act in a rational, selfminus−interested way.
Adam Smith's
Jeb makes the following four statements about peanuts. Which statement best describes his quantity demanded in the peanut market?
At a price of $1 per pack, I plan to buy 2 packs of peanuts per week.
In the figure, when 2000 bicycles are produced each month, we can see that
Both answers A and B are correct.
The graph shows the private demand for loanable funds curve and the supply of loanable funds curve. Draw a curve that shows the effect on the loanable funds market when the government has a budget deficit. Label it C1. Draw a curve that shows the Ricardo-Barro effect on the loanable funds market. Label it C2. Draw a point at the new real interest rate and quantity of loanable funds. The Ricardo-Barro effect ________ crowding out.
C1 is to the right of PDLF C2 is to the right of SLF eliminates
Which of the following is an example of investment?
Continental buying Airbus planes
Economics promotes which of the following as the way to make the best decision?
Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.
Which of the following is an example of a final good or service?
Dan bought a Toyota Camry.
If Dani and Emily devote equal amounts of time and effort to making pretzels, Dani produces more units than Emily. This information tells us that
Dani has an absolute advantage in producing pretzels
Which of the following fiscal policies combats inflation?
Decreasing government spending
If it costs Vijay $150 to design 5 websites and $175 to design 6 websites, then $175 is the marginal cost of producing the 6th Websites.
False
U.S. Workers World's Most Productive Americans work longer hours than those in most other rich nations. Americans also produce more per person during the year, but only part of the U.S. productivity growth can be explained by the longer hours Americans work. Americans also create more wealth per hour of work. U.S. employees worked an average of 1,804 hours in 2006, compared to 1,564.4 for the French, but far less than the 2,200 hours that Asians worked. But the Asian countries the average labor productivity is lower. The article defines productivity as ______. Real GDP per person is ______.
GDP divided by the number of people employed; real GDP divided by the population
Which of the following statements describes a change in the quantity supplied and which describes a change in supply? I Farms are selling less chicken because the price of turkey has increased. II Farms are selling less chicken because the price of chicken has fallen. III Farms are selling more chicken because the price of chicken has risen. IV Farms are selling more chicken because the cost of chicken feed has fallen.
I and IV are changes in supply and II and III are changes in the quantity supplied
Which of the following is TRUE regarding markets? I. Economists define a market as a geographic location where trade occurs. II. A market enables buyers and sellers to get information about each other and to buy and sell from each other. III. Markets coordinate decisions through prices.
II and III
Choose the statement that is incorrect.
If a financial institution's net worth is positive, the institution must be solvent and liquid.
Choose the correct statement about purchasing power parity.
If purchasing power parity does not prevail, the demand for U.S. dollars changes and the supply of U.S. dollars changes.
Choose the statement that is incorrect. A. In the long run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate. .B. In the long run, a rise in the foreign price level brings dollar appreciation and a rise in the U.S. price level brings dollar depreciation. C. In the long run, the nominal exchange rate is a monetary phenomenon. D. In the long run, the nominal exchange rate is determined by the quantities of money in two countries.
In the long run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate.
The opportunity cost to produce 1 pretzel for James is 2 cookies. For Carolline, the opportunity cost to produce 1 pretzel is 3 cookies. From this information, we know that
James has a comparative advantage in pretzel production.
Deflation in Japan arose because _______.
Japan's money stock did not grow fast enough to accommodate the growth of potential GDP and a trend rise in velocity.
In ______ cycle theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
Keynesian; monetarist
Draw a demand for money curve. Label it MD0. Draw a demand for money curve that shows the effect of a decrease in real GDP. Label it MD1. Draw a demand for money curve that shows the effect of financial innovation that decreases the demand for money and that follows the decrease in real GDP. Label it MD2. When real GDP decreases, ______.
MD1 to the left of MD0 MD2 to the left of MD1 a decrease in the demand for money occurs
Which of the following equations is incorrect?
MPC + MPS = ΔYD
The equation of exchange is ______ and it is true ______.
MV = PY; by definition
Michael is an Internet service provider. On December 31, 2012, he bought an existing business with servers and a building worth $200,000. During his first year of operation, his business grew and he bought new servers for $300,000. The market value of some of his older servers fell by $100,000. Calculate Michael's gross investment, net investment, and depreciation during 2013.
Michael's gross investment during 2013 was $300,000. Michael's depreciation during 2013 was $100000. Michael's net investment during 2013 was $200,000.
Choose the statement that is incorrect.
Most economists believe that the Ricardo-Barro effect holds in the loanable funds market.
Assume that the graphs in this figure represent the demand and supply curves for coffee. What happens in this market if buyers expect the price of coffee to rise?
Panel (c)
ews release In May 2012, real personal consumption expenditures (PCE) was $9,588 billion and the PCE deflator was 115.4. In June 2012, real personal consumption expenditure was $9,576 billion and personal consumption expenditure was $11,062 billion. Source: Bureau of Economic Analysis, July 30, 2012 Calculate personal consumption expenditure in May 2012 and the PCE deflator in June 2012. Was the percentage change in real personal consumption expenditure greater or smaller than that in personal consumption expenditure?
Personal consumption expenditure in May 2012 was $11064 billion. The PCE deflator in June 2012 was 115.5 The percentage change in real personal consumption expenditure between May 2012 and June 2012 was −0.13 percent. The percentage change in personal consumption expenditure between May 2012 and June 2012 was −.03 percent. he percentage change in real personal consumption expenditure is GREATER than the percentage change in personal consumption expenditure.
Which of the following is an example of consumption expenditure?
Rachel buying a TV.
Choose the statement that is incorrect.
Real GDP per person grows whenever real GDP grows.
Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?
Research finds that consumption of olive oil reduces the risk of heart disease.
On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $10,000. At the end of the year, the market value of all of Sophie's beds was $27,000. Calculate Sophie's gross investment and depreciation during 2014.
Sophie's gross investment during 2014 was $10,000. Sophie's depreciation during 2014 was $3000.
Choose the statements concerning neoclassical growth theory that are true. 1. As incomes increase both the birth rate and the death rate decrease. 2. Neoclassical growth theory implies that growth rates and income levels per person around the globe will diverge. 3. Neoclassical growth theory states that growth in real GDP per person can persist indefinitely. 4. The rate of technological change influences the economic growth rate but economic growth does not influence the pace of technological change.
Statements 1 and 4 are correct.
Choose the correct statements. 1. Current chairman of the Fed is Alan Greenspan. 2. The president of the Federal Reserve Bank of New York is a member of the FOMC. 3. The FOMC meets approximately every six weeks. 4. The president of the San Francisco Fed is always a member of the FOMC.
Statements 2 and 3 are correct.
The Bureau of Labor Statistics reports six alternative measures of the unemployment rate. Choose the correct statements. a. U-4 is the official unemployment rate. b. U-1 measures those who are unemployed for 15 weeks or more. c. U-2 measures the job losers. d. U-6 measures those who are unemployed for 15 weeks or more.
Statements b and c are correct.
I = ______.
S + (T−G) + (M−X)
Choose the statement that is incorrect.
The CPI calculation assumes that everyone shops at discount stores and no one shops at convenience stores
Suppose the United States goes from a free-trade policy to a no-trade policy with other countries. Which of the following is a result of this new policy?
The U.S. no longer consumes outside its production possibilities frontier
Russell studies instead of playing tennis. The opportunity cost to him of studying is
The forgone value of playing tennis.
Which of the following statements by Tom demonstrates that his buying plans obey the law of demand?
The only thing that's changed is the price of textbooks: they've become more expensive and now I'm not buying as many.
Choose the statement about the Fed that is incorrect.
The policy decisions of the Federal Open Market Committee are implemented each month by a different Federal Reserve Bank.
Choose the statement about an increase in the population that is incorrect.
The production function shifts upward.
Which of the following will hold true if the market for cameras is in equilibrium at a price of $40?
The quantity of cameras produced will equal the quantity of cameras bought in the market.
The table gives information about the U.S. labor market in 2005. What is the unemployment rate?
The unemployment rate is 5.1 percent.
Choose the statement that is incorrect.
The unemployment rate is zero when the economy is at a business cycle peak.
The table shows the amounts held as the various components of M1 and M2. What are the values of M1 and M2?
The value of M1 is $295 billion. The value of M2 is $1110 billion.
Which of the following statements is false?
Trade−offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.
A high unemployment rate tells us that a large percentage of the labor force is unemployed, but it doesn't tell us why the unemployment rate is high. The ______ measure of unemployment tells us if people are taking longer than usual to find a job. The ______ measure of unemployment tells us if more people are economic part-time workers. The ________ measure of unemployment tells us if more unemployed people are job losers.
U-1; U-6 - U-5 U-2
Toyota and Honda Shift Production to North America Toyota plans to stop exporting the Lexus RX to North America from Japan, building all of the vehicles in North America. The company will invest $98.3 million to boost its production capacity. Honda Motor Co. will shift a major chunk of its manufacturing to North America and increase its production capacity by as much as 40 percent The decision by Toyota and Honda to build more cars in the United States influences the factor incomes that make up U.S. GDP by increasing ______.
U.S. compensation of employees and other factor incomes
Illegal Immigrants Flock to Youth Program Tens of thousands of young illegal immigrants applied to a program that could allow them to remain in the United States and work legally. "So many opportunities are going to open up now," said one Mexican student, who boasts a 3.95 GPA and hopes to study law. With 2 million illegal immigrants eligible to apply to the youth program, which of the following could not occur?
U.S. real GDP will decrease because the illegal immigrants will pay taxes and paying taxes decreases the quantity of labor supplied.
The real exchange rate is the relative price of _____ to _____.
U.S.-produced goods and services; foreign-produced goods and services
Mitsubishi Heavy Industries makes the wings of the new Boeing 787 Dreamliner in Japan. Toyota assembles cars for the U.S. market in Kentucky. Choose the correct statement.
When the wings are sent to the United States, their value appears as Japanese exports in calculating Japan's GDP.
Which of the following shifts the demand curve for oranges?
a decrease in the price of a pound of bananas, a substitute in consumption for oranges
Classify each of the following items as a final good or an intermediate good, and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services: Item 1. A new airplanes bought by United Airlines Item 2. Coffee beans bought by Starbucks Item 3. Banking services bought by a student Item 4. A new battle ship bought by the U.S. navy Item 1 is ______ and item 2 is ______. Item 3 is ______ and item 4 is ______.
a final good that is investment; an intermediate good a final good that is consumption expenditure; a final good which is government expenditure
A rise in the money wage rate with no change in potential GDP creates ______.
a leftward shift of the SAS curve and no change in the LAS curve
Nominal GDP is ______. Real GDP is ______.
a more precise name for GDP; the value of final goods and services produced in a given year when valued at the prices of a reference base year
If the quantity demanded exceeds the quantity supplied, then there is
a shortage and the price is below the equilibrium price.
Mrs. Lovejoy decides to invest in companies which she believes are producing its goods based on the preferences of consumers. Mrs. Lovejoy is investing in companies that are
allocatively efficient.
During the 100 years from 1914 to 2014, real GDP per person in the United States grew at ______.
an average of 2 percent a year
Economic growth can be represented by
an outward shift of the production possibilities frontier (PPF).
The graph shows the unemployment rate and the natural unemployment rate from 1980 to 2014. Draw a point on the Unemployment rate curve that shows a year in which the economy experiences full employment.
any point where the two lines cross
The law of demand implies that, other things remaining the same,
as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will decrease.
A Classical macroeconomist believes that the economy is self-regulating and always _____.
at full employment
Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?
at least $60,000
A central bank is ______. The central bank in the United States is the ______.
a bank's bank and a public authority that regulates a nation's depository institutions and conducts monetary policy; Federal Reserve System
If the government increases its expenditure on goods and services and as a result, the money wage rate increases, the economy has experienced _______.
a demand-pull rise in the price level
Labor supply growth is influenced by all of the following except_______.
changes in labor productivity
A ______ macroeconomist believes that the economy is self-regulating and always at full employment. A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
classical; Keynesian
Suppose people buy more of good 1 when the price of good 2 falls. These goods are
complements.
The components of aggregate expenditure that are influenced by real GDP are ______.
consumption expenditure and imports
The expenditure approach to measuring GDP sums together ______, and the largest component is ______.
consumption expenditure, investment, government expenditure on goods and services, and net exports; consumption expenditure
Stagflation occurs when _______.
costs increase
The tables describe an economy's labor market and its production function in 2014. In 2015, the population increases and labor hours supplied increase by 90 at each real wage rate. The economy's standard of living ______ in 2015 because ______.
decreased; real GDP per person is smaller in 2015 than in 2014
Suppose that the exchange rate risesrises from 0.75 euroseuros per U.S. dollar to 0.78 euroseuros per U.S. dollar. What is the effect of this change on the quantity of U.S. dollars that people plan to buy in the foreign exchange market? The quantity of U.S. dollars that people plan to buy in the foreign exchange market _______.
decreases and a movement upup along the demand curve for U.S. dollars occurs
Aggregate demand decreases if expected future income, inflation, or profits ______. And aggregate demand decreases if fiscal policy ______ government expenditure.
decreases; decreases
Aggregate demand decreases if monetary policy ______ the quantity of money and ______ interest rates.
decreases; increases
Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone dams, as more freeways are constructed, the marginal benefit of additional freeways ________ and the marginal cost of additional freeways ________.
decreases; increases
If the Fed raised the interest rate while the Brazilian interest rate remained at 8.75 percent, the Brazilian real would
depreciate by a smaller amount than if the Fed left the interest rate unchanged
The ratio of reserves to deposits that a bank plans to hold is its ______. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has ______.
desired reserve ratio; excess reserves
Potential GDP is ______.
determined by the full-employment quantity of labor
The relationship between saving and _____, other things remaining the same, is called the saving function.
disposable income
The Brazilian real has appreciated 33 percent against the U.S. dollar and has pushed up the price of a Big Mac in Sao Paulo to $US4.60, higher than the New York price of $US3.99. Despite Brazil's interest rate being at 8.75 percent a year compared to the U.S. interest rate at near zero, foreign funds flowing into Brazil surged in October. Interest rate parity _________ hold between Brazil and the United States. The Brazilian real is expected to ___________ by ______ percent.
does depreciate 8.75 percent
The table provides some data on real GDP and the population of Atlantis in 2010 and 2011. If the growth rates of 2011 are maintained in future years, real GDP per person in Atlantis will ______.
double by 2025
Interest rate parity means ______.
equal rates of return
The supply of loanable funds is influenced by all of the following except ______.
expected profit
The consequences of deflation include all of the following except _______.
falling real wage rates for workers with long-term wage contracts
Real GDP is the value of the _____ goods and services produced in a given year expressed in terms of the prices in _____ year. Nominal GDP is the value of the _____ goods and services produced in a given year expressed in terms of the prices of _____ year.
final; a base; final; that same
Student who leave school in the spring and look for work are one source of ___________.
frictional unemployment
The figure illustrates Mary's production possibilities frontier. If Mary wants to move from point b to point c, she must
give up some of good Y in order to obtain more of good X.
The balanced budget multiplier equals the change in equilibrium expenditure and real GDP that results from equal changes in _____ divided by the change in government expenditure.
government expenditure and lump-sum taxes
When the unemployment rate is less than the natural unemployment rate, real GDP is ______ than potential GDP and the output gap is ______.
greater; positive
Nation's Economic Pain Deepens A spike in the unemployment ratelong dash—the biggest in more than two decadeslong dash—raised new concerns that the economy is heading into a recession. The U.S. unemployment rate soared to 5.5% in May from 5% in Aprillong dash—much higher than forecasted. The surge marked the biggest one-month jump in unemployment since February 1986, and the 5.5% rate is the highest seen since October 2004. The unemployment rate in May 2008 is ______ the estimated natural unemployment rate. This implies that real GDP is ______ potential GDP at this time.
greater than; less than
According to new growth theory, ______.
growth can persist indefinitely
The basic economic problem of scarcity
has always existed and will continue to exist.
Exports and Imports Increase Real exports of goods and services increased 6.0 percent in the second quarter, compared with an increase of 4.4 percent in the first. Real imports of goods and services increased 2.9 percent, compared with an increase of 3.1 percent. Source: Bureau of Economic Analysis, August 29, 2012 The changes in exports and imports reported here ______. Of the two quarters reported, exports and imports make the greater contribution to aggregate demand growth in the _________ quarter.
increase aggregate demand and have no effect on the quantity of real GDP demanded second quarter
An economy produces at point a on the PPF shown in the figure. A drought reduces the amount of wheat produced and the economy produces at point b. The opportunity cost of a unit of wheat ________.
increases
The Fed increasesincreases the quantity of money and all other things remain the same. In the short run, aggregate demand _______.
increases
If an economy experiences a decrease in the money supply, short-run unemployment
increases, and short-run output decreases.
Aggregate demand decreases if fiscal policy ______ taxes or ______ transfer payments.
increases; decreases
Aggregate demand decreases if the exchange rate ______ or foreign income ______.
increases; decreases
When the Federal Reserve Bank increases the federal funds rate, other
interest rates rise, and consumption, firms' private investment and net exports decrease.
The revenue received from the sale of an additional unit of a product
is a marginal benefit to the firm.
A flexible exchange rate is one that _______.
is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank
The Federal Open Market Committee is the Fed's _____ committee.
main policy making
A decrease in the marginal propensity to import _______, everything else remaining the same.
makes the multiplier larger
An increase in income taxes _______, everything else remaining the same.
makes the multiplier smaller
Real GDP ______ indicator of the standard of living because ______.
might be an unreliable; the standard of living depends on many factors, some of which are not part of real GDP
In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
new classical; new Keynesian
When the market for a commodity is in equilibrium:
no economic agent will want to change their behavior.
The key idea of classical growth theory that leads to the dismal outcome is that ______.
no matter how much technological change occurs, real GDP per person is always pushed back toward the subsistence level
The demand for money is the relationship between the quantity of real money demanded and the _______________ when all other influences on the amount of money that people wish to hold remain the same. When the nominal interest rate rises, the opportunity cost of holding money ______ and the quantity of real money demanded ______.
nominal interest rate rises; decreases
To increase the money supply, the Fed may conduct
open market purchases or decrease the discount rate.
The U.S. dollar exchange rate fluctuates in part because a change in the U.S. interest rate differential changes the demand for U.S. dollars and the supply of U.S. dollars in ______ and a change in the expected future exchange rate changes the demand for U.S. dollars and the supply of U.S. dollars in ______.
opposite directions; opposite directions
Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that
people respond to economic incentives.
The business cycle is a _____ but _____ up-and-down movement of total _____ and other measures of economic activity.
periodic; irregular; production
Consider the figure showing supply curves for soft drinks. Suppose the economy is at point a. A decrease in the price of sugar used to make soft drinks is shown as a movement from point a to a point such as
point b.
According to mainstream business cycle theory, ______ grows at a steady rate and ______ grows at a fluctuating rate.
potential GDP; aggregate demand
The output gap is real GDP minus _____ expressed as a percentage of _____.
potential GDP; potential GDP
A substitute in production is a good that is _____ another good, and a complement in production is a good that is _____ another good.
produced in place of; produced together with
Suppose the country of Popcorn produces only jets and corn. If Popcorn cannot produce any more jets without giving up corn, we say that Popcorn has achieved
production efficiency.
The newest theory of the business cycle, known as real business cycle theory (or RBC theory), regards random fluctuations in _____ as the main source of economic fluctuations.
productivity
In real business cycle theory, _______ are the main source of economic fluctuations.
random fluctuations in productivity
In the short run, ______ and ______ adjusts to achieve equilibrium.
real GDP determines the demand for money curve and the Fed determines the quantity of real money supplied; the nominal interest rate
New growth theory holds that _____ grows because of the choices people make in the pursuit of profit and that growth will _____.
real GDP per person; persist indefinitely
Short-run macroeconomic equilibrium occurs when the quantity of _____ demanded equals the quantity of _____ supplied at the point of intersection of the _____ curve and the _____ curve.
real GDP; real GDP; AD; SAS
Stagflation is a combination of a ______ in the price level and ______ in real GDP.
rise; a decrease
In June 2011June 2011, the exchange rate was 0.690.69 euroseuros per U.S. dollar. By June 2012June 2012, the exchange rate had risenrisen to 0.790.79 euroseuros per U.S. dollar. As the exchange rate risesrises, prices of U.S.-produced goods and services to foreigners ______ and the volume of U.S. exports ______.
rise;decrease
The demand for loanable funds increases and the supply of loanable funds increases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______. The demand for loanable funds increases and the supply of loanable funds decreases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises, falls, or remains the same; increases rises; increases, decreases, or remains the same
A ______ is a depository institution that accepts savings deposits and makes mostly home-purchase loans. A ______ is a depository institution owned by a social or economic group such as a firm's employees that accepts savings deposits and makes mostly personal loans.
savings bank; credit union
To keep the exchange rate pegged at its target level, the country's central bank must ______ U.S. dollars and ______ its foreign currency reserves.
sell; decrease
A critical function of the government in facilitating the operation of a market economy is
setting up and enforcing private property rights.
A means of payment is a method of _____ a debt.
settling
A riserise in the price level _______.
shifts the AE curve downwarddownward and brings a movement upup along the AD curve
An increase in labor productivity ______.
shifts the demand for labor curve rightward and the production function upward
A bond is a promise to pay _____ sums of money on _____ dates.
specified; specified
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
GDP Expands 11.4 percent, Fastest in 13 Years China's gross domestic product grew 11.4 percent last year and marked a fifth year of double-digit growth. The increase was especially remarkable given that the United States is experiencing a slowdown due to the sub-prime crisis and housing slump. Citigroup estimates that each 1 percent drop in the U.S. economy will shave 1.3 percent off China's growth, because Americans are heavy users of Chinese products. In spite of the uncertainties, China is expected to post its sixth year of double-digit growth next year. According to the expenditure approach for calculating China's GDP, "each one percent drop in the U.S. economy will shave 1.3 percent off China's growth" because as the U.S. economy shrinks, ______. China's ______ and China's real GDP decreases.
the United States imports less from China; exports decrease
Comparative advantage is
the ability to perform an activity at a lower opportunity cost than anyone else.
The quantity of U.S. dollars demanded in the foreign exchange market depends on many factors, the main ones being ______.
the exchange rate, world demand for U.S. exports, interest rates in the United States and other countries, and the expected future exchange rate
The marginal propensity to save is _______.
the fraction of a change in disposable income that is saved
The marginal propensity to consume is ______.
the fraction of a change in disposable income that is spent on consumption
An economy has a zero marginal tax rate. When real GDP increases, the change in consumption expenditure equals _______. When real GDP increases, the change in imports equals _______.
the marginal propensity to consume times ×the increase in real GDP the marginal propensity to import times ×the increase in real GDP
Gross domestic product is ______. A bakery uses flour to produce bread. When calculating GDP, we include ______, because when we add the value of the flour to the value of the loaf of bread to calculate GDP, the result is ______.
the market value of all the final goods and services produced within a country in a given time period only the value of the bread sold in a store; double counting
When cyclical unemployment increases and other things remain the same, ______.
the natural unemployment rate does not change
Choose the option that is an example of government expenditure.
the purchase of airline tickets by Congress to send members yo visit overseas troops
The demand for loanable funds is the relationship between _____ demanded and the _____ when all other influences on borrowing plans remain the same.
the quantity of loanable funds; real interest rate
With a rise in the money wage rate, ______.
the quantity that firms are willing to supply at each price level decreases
The current account is the record of receipts from _____ other countries, minus _____ other countries, plus the net amount of _____ received from and paid to other countries.
the sale of goods and services to other countries; payments for goods and services bought from; interest and transfers
Gross investment is ______. Net investment is ______.
the total amount spent on new capital; the change in the value of capital
Depository institutions have made innovations that have changed the composition of money in all of the following ways except ______.
the use of currency has fallen significantly
After you graduate, you have decided to accept a position working at the Bureau of Labor Statistics for $45,000.00 a year. The two other offers you received were working for Wal−Mart for $38,000 and working for Ernst and Young consulting for $42,000. Of these two offers, you would have preferred the job at Ernst and Young. What is the opportunity cost of accepting the position at the Bureau of Labor Statistics?
the $42,000 you would have been paid working for Ernst and Young
If the natural unemployment rate increases and the expected inflation rate remains constant, then ______.
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward
Allocative efficiency is a situation in which the quantities of goods and services produced are those that people _____ - it is not possible to produce more of a good or service _____ some of another good that people _____.
value most highly; without giving up; value more highly
The quantity of U.S. dollars supplied in the foreign exchange market depends on all of the following except ______.
world demand for U.S. exports
The marginal propensity to consume is equal to ______, and the marginal propensity to save is equal to ______.
ΔC ÷ ΔYD; ΔS ÷ ΔYD
Tight Money Won't Slay Food, Energy Inflation It's important to differentiate between a general increase in priceslong dash—a situation in which aggregate demand exceeds their aggregate supplylong dash—and a relative price shock. For example, a specific shock to energy prices can become generalized if producers are able to pass on the higher costs. So far, global competition has made that difficult for companies, while higher input costs have largely been neutralized by rising labor productivity. Since 2003, core inflation has averaged less than 2 percent a year in the 30 major economies. History also suggests the Fed's gamble that slowing growth will shackle core inflation is a winning wager. The risk is that if U.S. consumers don't believe price increases will slow, growing inflation expectations may become self-fulfilling. Choose the correct statement.
"Slowing growth" can reduce inflationary pressure if aggregate demand growth slows.
In an economy, there is $175 million in currency held outside banks, $175 million in traveler's checks, $225 million in currency held inside the banks, $100 million in checking deposits, $800 million in savings deposits, $1,000 million in time deposits, and $800 million in money market mutual funds and other deposits. The value of M1 is ______ and the value of M2 is ______.
$450 million; $3,050 million
The price of a bag of corn chips is $3, and the price of a bottle of soda is $1. What is the relative price of a bottle of soda?
1/3 bag of corn chips
Should Congress Pass a New Stimulus Bill? No, Cut Taxes and Curb Spending Instead The first stimulus was not too meager, but it was the wrong policy prescription. Anybody who studies economic history would know that government spending doesn't produce long-term sustainable growth, and jobs. The only sure way to perk up the job market is to cut taxes permanently and rein in public spending and excess regulation. Source: sgvtribune.com, September 11, 2010 Read the news clip, then answer the following questions. Economists from the ______ macroeconomic school of thought would recommend a second spending stimulus. Economists from the ______ macroeconomic school of thought would recommend a permanent tax cut.
Keynesian; classical or monetarist
A typical business cycle can be described by the sequence ______.
expansion, peak, recession, trough
Net exports of goods and services is the value of _____ of goods and services _____ the value of _____ of goods and services.
exports; minus; imports
If all (or most) prices have increased in the United States and not increased in Japan, then people will generally expect that the foreign exchange value of the dollar will ______. The demand for dollars ______.
fall; decreases and the supply of dollars increases
Between 2012 and 2014, the U.S. exchange rate ______ against the Japanese yen because the U.S. interest rate differential was expected to _______.
rose; increase
If the expected inflation rate increases and the natural rate of unemployment remains constant, then _______.
. the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift