Combined Macro Test Answers for Final

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An economy produces only digital​ cameras, chocolate​ bars, and watches The table gives the quantities produced and prices in 2015 and 2016. The reference base year is 2015. What is real GDP in 2016 in terms of the reference​ base-year prices? Real GDP in 2016 in terms of reference​ base-year prices is

$11

During a​ year, a​ firm's depreciation is ​$1,000 and gross investment is ​$5,000. What is the​ firm's net investment​? The​ firm's net investment is​ ______.

$4,000

Suppose an increase in the monetary base of ​$1​00,000 increases the quantity of money by ​$300,000. Calculate the money multiplier.

3

Consider a payment of $500​, which will be made three years in the future. The interest rate is 3 percent.

457.57

If the nominal interest rate is 7 percent and the inflation rate is 1​ percent, the real interest rate is approximately

6%

The table gives information reported by the Bureau of Labor Statistics for April​, 2017. What is the​ employment-to-population ratio?

60.2

The table gives information about the U.S. labor market in 2013. What is the labor force participation​ rate?

63.2

Two​ countries, Alpha and​ Beta, have identical production possibilities frontiers. If Alpha produces at point A and Beta produces at point B​, then​ _______.

Alpha consumes more than Beta​ today, but it will grow slower than Beta

Which of these is an example of an automatic fiscal policy?

An unemployment benefit program

Choose the statement that is incorrect.

A tariff creates a social loss because the domestic government loses revenue.

A tariff is a

A tax on an imported good or service.

The figure shows the flows of expenditure and income in Europa. During 2015​, B was ​$493 billion​, C was ​$198 billion​, D was ​$188 billion​, and E was $8 billion. In the​ figure, consumption expenditure is represented by the flow labeled B​, investment is represented by the flow labeled D​, government expenditure is represented by the flow labeled C and net exports is represened by the flow labeled E.

During 2015​, aggregate income was ​$887 billion. GDP was ​$887 billion

The table provides some data on real GDP and the population of Pacifica in 2012 and 2013. What is the growth rate of real GDP in Pacifica in 2013​? What is the growth rate of real GDP per person in Pacifica in 2013​?

The growth rate of real GDP in Pacifica in 2013 is 14 percent. The growth rate of real GDP per person in Pacifica in 2013 is 10 percent.

Explain why a relative price is an opportunity cost. The money price of a pack of frozen burritos is ​$0.60 and the money price of a jar of pasta sauce is ​$1.50. The opportunity cost of a jar of pasta sauce is​ _______. The relative price of a jar of pasta sauce is an opportunity cost because​ ______.

b. 2.50 packs of frozen burritos​, which is the relative price of a jar of pasta sauce the relative price tells us how many packs of frozen burritos we must give up to get a jar of pasta sauce

The opportunity cost to produce 1 pretzel for Mark is 2 cookies. For​ Jessica, the opportunity cost to produce 1 pretzel is 3 cookies. From this​ information, we know that

b. Mark has a comparative advantage in pretzel production.

Suppose a concert pianist practises the piano for 6 hours every day, but to prepare for an upcoming concert, she decides to practise for an extra hour. The​ _____ of one more hour of practising is​ _____.

c. marginal cost; an hour of reading, if that is her best alternate use of the time

If the demand curve for bottled water shifts rightward and the supply curve of bottled water shifts​ leftward, the equilibrium

c. price of bottled water definitely increases.

Supply-side economists point to the Laffer curve as evidence that higher taxes:

can lead to overall government revenues

Countries gain from specializing in producing goods in which they have a(n) __________ advantage and trading for goods in which other countries have a(n) __________ advantage

comparative; comparative

The consumer price index​ (CPI)

compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

To increase the money​ supply, the Fed may conduct

conduct open market purchases of government bonds.

When a good is​ imported, _______.

consumers gain because they pay a lower price and increase the quantity they consume

When a good is​ exported, _______.

consumers lose because they pay a higher price and decrease the quantity they consume

When the United States places a tariff on a​ good, the U.S.​ ______ and the U.S.​ ______ from the tariff.

consumers of the good​ lose; producers of the good gain

a decline in private expenditures as a result of an increase in government borrowing is known as:

crowding out

In one​ hour, Sue can produce 50 caps or 10 jackets and Tessa can produce 70 caps or 7 jackets. ​Sue's opportunity cost of producing a cap is​ ______ jackets and​ Tessa's opportunity cost of producing a cap is​ ______ jackets.

d. 0.2; 0.10

When operating on its PPF​, a country can produce 2 tons of butter and 200 cars OR 3 tons of butter and 150 cars. The opportunity cost of 1 ton of butter is​ ________ cars per ton of butter.

d. 50

Complete the following sentence. ​If, as Gustavo's income increases​, his demand for designer blue jeans increases​, then for Gustavo​, designer blue jeans are ​_______.

d. a normal good

Draw a demand curve and a supply curve using the numbers in the table. Label the curves. Draw a point to show the equilibrium price and equilibrium quantity. Now suppose that the price is $3 a magazine. Describe the situation in the magazine market and explain how the price adjusts.If the price is $3 a magazine​, there is a​ ______ of magazines​, so the price of a magazine ​______.

d. shortage; rises

Miles graduates from college and his income increases by ​$20,000 a year. Nothing else changes. Miles decreases the quantity of hot dogs and bread rolls that he buys and increases the quantity of stuffed olives that he buys. For Miles​, ​_______.

d. stuffed olives are normal goods

The government is considering raising the tax rate on labor income. Explain the​ supply-side effects of such an action and use appropriate graphs to show the directions of​ change, not exact magnitudes. What will happen to the supply of labor and the demand for labor and​ why? The supply of labor will​ ______ and the demand for labor will​ ______.

decrease because the tax weakens the incentive to​ work; not change because labor productivity​ doesn't change

In 2008, spending on Social Security, Medicare and Medicaid was less than 10% of the GDP. By 2030 this amount is expected to be around 17% of GDP. One government option to solve this problem is to:

decrease benefits

Tax revenues​ ______ during a recession. ​Needs-tested spending​ ______ during an expansion.

decrease; decreases

What will happen to potential​ GDP, and​ why? Potential GDP will​ ______ because​ ______ .

decrease; employment decreases

A decrease in the demand for loanable funds and a leftward shift of the demand for loanable funds curve results from

decreases in the expected profit

How does a tax on labor income influence the equilibrium quantity of​ employment? A tax on labor income​ ______. The equilibrium quantity of labor​ ______.

decreases the supply of​ labor; decreases

What will happen to equilibrium employment and the equilibrium​ before-tax and​ after-tax wage rates and​ why? Because the tax​ ______ , the equilibrium level of employment will​ ______ , the​ before-tax wage rate will​ ______, and the​ after-tax wage rate will​ ______.

drives a wedge between the​ take-home wage and the cost of​ labor; decrease;​ rise; fall

Consider gardening books. What will happen to the market for these books as gardening becomes more popular and simultaneously printing costs​ increase?

a. The price of gardening books definitely increases

Draw an aggregate demand curve in an economy with an above​ full-employment equilibrium. Label it AD. Draw a point at the above​ full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the output gap. The output gap in the graph is​ ______ because​ ______.

an inflationary gap; potential GDP is less than real GDP

Discouraged workers​ ________ counted as officially unemployed because they​ ________.

are​ not; are not actively seeking work

Taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called __________.

automatic fiscal policy

The graph shows the U.S. production function. Draw a point that indicates potential GDP when the equilibrium quantity of labor is 250 billion hours. Show the effect of a tax on labor income. Draw either an arrow along the PF showing the direction of​ change, or a new production function. Draw only the one of these objects that correctly shows the effect of the tax.

drop a point at 250, then draw an arrow going down from that point

Draw a labor supply curve and a labor demand curve. Label them LS0 and LD0. Draw a point the equilibrium quantity of labor and the equilibrium real wage rate. Label it 1. Draw and label a curve that shows the effect of an increase in labor productivity. Draw a point at the new equilibrium quantity of labor and the equilibrium real wage rate. Label it 2. An increase in labor productivity increases potential GDP because​ ______.

employment increases and a given amount of unemployment produces more real GDP

The price of a bond​ _______ and the interest rate​ _______.

falls; rises

Government policies that increase aggregate demand are called:

fiscal stimulus

One of the primary goals of most governments with regard to the economy is:

full employment

If a country has a comparative advantage in the production of a good, then that country:

has a lower opportunity cost in the production of that good

How can the federal government use discretionary fiscal policy to stimulate the​ economy? An economy is experiencing a recessionary gap. The government can​ ______.

increase expenditure or cut taxes to increase aggregate demand

When the economy is in a recession, the Government can:

increase government purchases or decrease taxes in order to increase aggregate demand.

It is unlikely that the United States is on the​ "wrong" side of this curve​ because, if it​ were, a decrease in the tax rate would​ ______ .

increase tax revenue

An increase in the demand for computers and a decrease in the number of sellers of computers will​ ________.

increase the price of a computer

budget deficets automatically ________ during recessions and ________ during expansions.

increase, decrease

By​ itself, an increase in exports

increases GDP

The graph shows an aggregate demand curve. Draw a curve that shows the effect on aggregate demand of an increase in expected future income. Label it. An increase in expected future income​ _______. An increase in the expected future inflation rate​ _______. An increase in expected future profits​ _______.

increases aggregate demand​ today; increases aggregate demand today increases aggregate demand today

Why might fiscal stimulus crowd out​ investment? Fiscal stimulus that increases an existing government budget deficit​ ______ loanable​ funds, which​ ______ investment.

increases the demand​ for; increases the real interest rate and decreases

If an economy experiences a decrease in the money​ supply, short-run unemployment

increases, and​ short-run output decreases.

The tools at the disposal of the Fed for changing the quantity of money do NOT include

increasing the number of commercial banks.

Compared to a balanced​ budget, when the government runs a budget​ deficit,

interest rates​ rise, and​ firms' private investment decreases.

When the Federal Reserve Bank increases the federal funds​ rate, other

interest rates​ rise, and​ short-run real GDP decreases.

Because of the biases in calculating the​ CPI, actual inflation is

less than the measured inflation rate.

In any​ year, real GDP

might be greater or less than potential GDP.

The graph shows the demand for money curve and the supply of money curve. The Fed decreases the quantity of real money supplied to ​$5.9 trillion. Draw a new MS curve that shows the effect of the ​ Fed's action. Label it. Draw a point at the new equilibrium quantity of money and interest rate. Before the Fed decreases the quantity of​ money, the equilibrium interest rate is 4 percent a year.After the Fed decreases the quantity of​ money, at an interest rate of 4 percent a​ year, people want to hold ​ _______ money than the quantity​ supplied, so they ​ _______ bonds.

more; sell

The country of Kemper is on its aggregate production function at point W in the figure. If the population increases with no change in capital or​ technology, the economy will

move to point such as X.

In neoclassical growth​ theory, technological change​ ________.

occurs by chance

Full employment occurs

only if the unemployment rate is equal to the natural rate of unemployment.

When nations specialize in their comparative advantage and engage in trade:

overall standards of living increase

Because pollution reduces economic​ welfare, on this count real GDP

overstates economic welfare

The net gain from international trade is​ _______.

positive. Consumers gain more than producers lose with​ imports, and producers gain more than consumers lose with exports.

The term​ "crowding out" relates to the decrease in

private investment from a government budget deficit

The use of trade barriers to shield domestic companies from foreign competition is called __________.

protectionism

Aggregate expenditures include all of the following EXCEPT

purchases of intermediate goods.

What is PPP and how does it help us to make valid international comparisons of real​ GDP? PPP is​ _______. When we use PPP we can make valid international comparisons of real GDP because​ ______.

purchasing power parity we calculate the value of goods and services produced in two countries using the same prices

A numerical limit on the quantity of a good that can be imported is known as a(n):

quota

The relationship between real GDP and potential GDP is that

real GDP fluctuates about potential GDP.

Labor productivity is defined as

real GDP per hour of labor.

Draw the​ long-run aggregate supply curve when potential GDP is ​$18.5 trillion. Label it. As we move up along the​ long-run aggregate supply​ curve, ______.

the real wage rate remains constant

An automatic fiscal policy is a fiscal policy action that is triggered by​ _____. A discretionary fiscal policy is a fiscal policy action that is initiated by​ _____.

the state of the​ economy; an act of Congress

In the​ figure, an economy would grow fastest if it produces at point

a. A (top left point on the PPF)

Tax cuts will not pay for themselves if​ ______.

the economy lies to the left of the maximum point on the Laffer curve

Which, if​ any, of the following causes a​ country's reported GDP to be less than its total economic​ production?

the exclusion of household production

As we move up along the​ short-run aggregate supply​ curve, ______.

the money wage​ rate, the prices of other​ resources, and potential GDP remain constant

Which of the following statements illustrates fiscal policy​?

The US government has proposed a hike in the corporate tax rate.

When a shortage or a surplus arises in the loanable funds market​ _______.

the real interest rate is pulled to the new equilibrium level

Technological change creates economic growth. Draw a new PPF that illustrates the effect of a technological change that brings new and better ways of producing both ships and planes. Make the PPF that you draw show increasing opportunity cost. Label the curve.

Just draw a new PPF above the old one and label "ppf1"

What are the official measures of​ money? Are all the measures really​ money? The two main official measures of money in the United States today are​ ______. The two main official measures of money in the United States​ ______ really money.

M1 and​ M2; are

________ predicts that real GDP per person can grow indefinitely.

New Growth Theory

An economy produces only apples and oranges. The base year is​ 2015, and the table gives the quantities produced and the prices. Calculate nominal GDP in 2015 and 2016.

Nominal GDP in 2015 is ​$140 Nominal GDP in 2016 is ​$625

Tony and Patty produce skis and snowboards. The tables show their production possibilities. Tony produces 2 snowboards and 16 skis a​ week; Patty produces 4 snowboards and 2 skis a week.

PATTY has a comparative advantage in producing snowboards; TRUE Patty has a comparative advantage in producing skis; FALSE If Tony and Patty specialize in trade, _____ would specialize in snowboards and produces ______; Answer: PATTY; 8 snowboards If Tony and Patty specialize in trade, _____ would specialize in skis and produces ______; Answer: Tony; 20 skis The number of snowboards INCREASES by 2. The number of skis INCREASES by 2.

Fiscal imbalance is the ___ value of the​ government's commitments to pay benefits minus the ____ value of its tax revenues.

PRESENT; PRESENT

Summers Calls for Infrastructure Spending Larry​ Summers, the outgoing director of the White House National Economic​ Council, said the United States must ramp up spending on domestic infrastructure to drive the economic recovery. He said that a combination of low borrowing​costs, cheap building​ costs, and high unemployment in the construction industry make this the ideal time to rebuild​roads, bridges, and airports. Read the news​ clip, then answer the following questions. This infrastructure spending is fiscal stimulus. T/F Such spending is​ _______ fiscal policy.

TRUE discretionary

The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2013​ (the reference base​ year). The average household spent ​$20 on juice and ​$18 on cloth in 2013 when the price of juice was ​$2 a bottle and the price of cloth was ​$6 a yard. In​ 2014, juice is ​$6 a bottle and cloth is ​$8 a yard. Calculate the CPI and the inflation rate in 2014.

The CPI in 2014 is 221.1 ​>>> Answer to 1 decimal place. The inflation rate in 2014 is 121.1 percent.

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

The table gives information reported by the Bureau of Labor Statistics for February​, 2017. What is the unemployment​ rate?

The unemployment rate is 4.7 percent.

What happens when government spending is greater than government tax revenues?

There is borrowing by the government and the government debt rises.

The graph shows the demand for labor curve and supply of labor curve for an economy. Draw a point at the equilibrium real wage rate and equilibrium quantity of labor. Label it 1. Now the government imposes a tax on labor income. Draw a curve that shows the effect of this tax. Label it. Draw points at the new equilibrium quantity of labor to​ show: ​1) the​ before-tax wage rate. Label it 2. ​2) the​ after-tax wage rate. Label it 3. When the government imposes a tax on labor​ income, ______ the production function occurs and potential GDP​ ______.

a leftward movement​ along; decreases

Draw a labor supply curve and a labor demand curve for the United States. Label the curves LS0 and LD0. Draw a point at the equilibrium quantity of labor and the equilibrium real wage rate. Label it 1. Now suppose the United States returns millions of illegal immigrant workers to their home​ countries, decreasing the population of workers in the United States. Draw and label a curve that shows the effect of this return of workers. Draw a point at the new equilibrium quantity of labor and the equilibrium real wage rate. Label it 2. The effect of the United States returning millions of workers to their countries of origin is​ _____ the U.S. aggregate production function and​ _____ in potential GDP.

a movement down​ along; a decrease

The figure shows Megan​'s PPF. Megan currently produces 15 bags of crackers and no cookies. If Megan decides to produce 1 bag of cookies​, her opportunity cost of the bag of cookies is​ _______ of crackers.

a. 3 bags

​______ has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 7 ​caps, ______

a. Tessa; both Sue and Tessa gain

If shoes rise in​ price, the demand curve for shoes​ ________ and the quantity of shoes demanded​ ________.

a. does not​ shift; decreases

What is the law of supply and how do we illustrate​ it? The law of supply states that other things remaining the​ same, the​ _______ the price of a​ good, the​ _______. A supply curve that illustrates the law of supply​ _______.

a. higher; greater is the quantity supplied d. is upward sloping

Flights to Paris are a normal good and​ people's incomes rise. At the same​ time, the price of jet fuel rises. The equilibrium price of a flight to Paris​ ________ and the equilibrium quantity of flights to Paris​ ________.

a. rises; might increase, decrease, or not change

Which of the following statements are normative​? 1. We ought to have a cure for cancer 2. Air travel has increased since September 11 3. The greatest number of accidents are caused by drunk drivers 4.

a. statements 1 and 4 are normative

Using the​ figure, suppose that roses are a normal good. If incomes decrease while simultaneously there is an increase in the price of the resources used to produce​ roses, then

a. the quantity will definitely decrease below 10 dozen roses.

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resource is known as:

absolute advantage

According to the theory of comparative advantage, specialization and free trade will benefit:

all trading partners who specialize in goods where they have comparative advantage

Which of these fiscal policy actions will increase real GDP in the short run?

an increase in government expenditures

In the short​ run, which of the following actions raise the interest​ rate?

an increase in the demand for money

If demand and supply change in the same​ direction, we​ _____ the direction of change of the equilibrium quantity and we​_____ the direction of change of the equilibrium price.

b. can​ predict; cannot predict

Kelsey has two slices of pizza for lunch. The marginal benefit that Kelsey receives from the second slice of pizza is​ _______.

b. the benefit she receives from eating the second slice of pizza

The table shows some of​ Brazil's production possibilities for ethanol and food crops. Complete the following statements. Marginal cost of a good is​ _______. When the quantity of food produced is 2.5 tons a​ day, the marginal cost of producing a ton of food is ____barrels of ethanol.

b. the opportunity cost of producing one more unit of it 14

If the price of chocolate chip cookies​ falls, then

b. there is a movement downward along the supply curve of chocolate chip cookies

Every time the federal government runs a budget deficit, the government must:

borrow, which adds to the government debt.

Trade between a rich and a poor country benefits

both countries.

An increase in potential GDP increases​ ______.

both​ long-run aggregate supply and​ short-run aggregate supply

A government that spends more than it collects in taxes experiences a:

budget deficit

A government that collects more in taxes than it spends experiences a:

budget surplus

If the federal government's expenditures are less than its revenue, there is a __________.

budget surplus

Refer to​ this​ graph, which​ represents​ Alice's Production Possibilities Frontier. At which levels of production is Alice​ producing​ inefficiently?

c. 200 units of lemonade and 50 units of pizza (inside the PPF)

Which of the following always raises the equilibrium​ price?

c. an increase in demand combined with a decrease in supply

John has two hours of free time this evening. He ranked his​ alternatives, first go to a​ concert, second go to a​ movie, third study for an economics​ exam, and fourth answer his e−mail. What is the opportunity cost of attending the concert for​John?

c. attending a movie

The income earned by the people who sell the services of the factor of production​ _______ is called​ _______.

c. capital; interest

The cost of saving jobs through trade barriers like tariffs and quotas is:

relatively high

At the new equilibrium quantity of​ labor, the​ before-tax wage rate _______ and the​ after-tax wage rate _______.

rises; falls

How is real GDP​ calculated? Real GDP is calculated by​ _______.

summing together the value of the​ year's production using the prices of the reference base year

What is the Laffer curve and why is it unlikely that the United States is on the​ "wrong" side of​ it? The Laffer curve is the relationship between the​ ______ and the​ ______ .

tax​ rate; amount of tax revenue collected

An open market operation involves

the Federal​ Reserve's purchase or sale of government securities.

Which of the following measurements of inflation strips out volatile food and fuel​ prices?

the core PCE

Generational imbalance is​ ______ .

the division of the fiscal imbalance between the current and future​ generations, assuming that the current generation will enjoy the existing levels of taxes and benefits

Business cycles are

unpredictable, but always have two phases and two turning points.

The tax wedge is the gap between the​ before-tax and​ after-tax ______.

wage rates

If tax revenues are​ $3,500 billion and the​ government's budget balance is a​ $720 billion​ deficit, calculate the​ government's outlays.

​$4,220

Ski trips and ski jackets are complements. If the price of a ski trip decreases​, how does the demand for ski jackets ​change? If the price of a ski trip decreases​, the demand for ski jackets will​ _______.

​B. Increase, and the demand curve for ski jackets will shift rightward

The relationship between the tax rate and the amount of tax revenue collected is called the​ ______ curve. This curve shows that​ ______.

​Laffer; tax cuts can increase tax revenue

Describe three types of​ short-run macroeconomic equilibrium. A macroeconomic equilibrium in which real GDP equals potential GDP is​ _____ equilibrium. And one in which real GDP exceeds potential GDP is​ _____ equilibrium.

​a full-employment​; an above full​-employment

Complete the sentence. When the unemployment rate​ ______ the natural unemployment​ rate, real GDP​ ______ potential GDP.

​is less than; is greater than

If potential GDP​ increases, what happens to aggregate​ supply? When potential GDP​ increases, ______.

​long-run aggregate supply and​ short-run aggregate supply increase. The LAS and the SAS curve shift rightward

A tax cut pays for itself if the economy lies to the​ ______ of the maximum point on the Laffer curve. This statement implies that the absolute value of the tax multiplier is​ ______.

​right; greater than 1

Suppose that the world price of tomatoes is 60 cents a​ pound, the United States does not trade​ internationally, and the equilibrium price of tomatoes in the United States is 40 cents a pound. The United States then begins to trade internationally. The price of tomatoes in the United States​ ______. U.S. consumers buy​ ______ tomatoes. The United States​ ______ tomatoes. The United States ______tomatoes. ______ gain from international trade in tomatoes. ​______ lose from international trade in tomatoes.

​rises;fewer tomatoes and U.S. firms produce​ more; exports EXPORTS U.S.​ producers; U.S. consumers

When a tax is applied to labor​ income, the result is a​ ______ full-employment quantity of labor and a​ ______ potential GDP.

​smaller; lower


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