ECON 2301 Macroeconomics Final Exam Study Guide
If nominal GDP increases by 5 percent a year and the GDP price index rises by 2 percent a year, then real GDP increases by _______. A. 10 percent a year B. 7 percent a year C. 2.5 percent a year D. 3 percent a year
3 percent a year
If real GDP increases from $5 billion to $5.25 billion and the population increases from 2 million to 2.02 million, real GDP per person increases by ______ percent. A. 4.0 B. 1.0 C. 2.5 D. 5.0
4.0
The federal government's major outlay in its budget is _______ and its major source of revenue is _______. A. subsidies to farmers; corporate taxes B. debt interest; sales of government bonds C. expenditure on goods and services; taxes on goods and services D. Social Security and other benefits; personal income taxes
Social Security and other benefits; personal income taxes
The Fed's operational goals include _______. A. an economic growth rate of 3 percent a year and an unemployment rate equal to the natural unemployment rate B. a strong U.S. dollar on foreign exchange markets and a positive output gap C. a core inflation rate of 2 percent a year and an output gap as small as possible D. maximum growth of stock prices and a low core inflation rate
a core inflation rate of 2 percent a year and an output gap as small as possible
The Fed's choice of monetary policy strategy is _______. A. setting the foreign exchange rate of the dollar B. adjusting the federal funds rate to best fulfill its dual mandate C. discretionary monetary policy D. the k-percent rule for money growth
adjusting the federal funds rate to best fulfill its dual mandate
A tax cut increases _______. A. aggregate demand because it increases disposable income and increases aggregate supply because it is an incentive to supply more labor B. aggregate demand but has no effect on aggregate supply C. aggregate demand because it increases consumption expenditure and decreases aggregate supply because labor productivity falls D. aggregate supply but has no effect on aggregate demand
aggregate demand because it increases disposable income and increases aggregate supply because it is an incentive to supply more labor
All of the following increase labor productivity except ______. A. an increase in consumption B. the employment of a new technology C. the accumulation of skill and knowledge D. an increase in capital per hour of labor
an increase in consumption
An economy can achieve faster economic growth without ______. A. an increase in the population growth rate B. incentives to encourage the research for new technologies C. markets and property rights D. people being willing to save and invest
an increase in the population growth rate
An efficiency wage results in all of the following situation except _______. A. a decrease in the rate of labor turnover B. greater work effort C. when work effort cannot be monitored D. an increase in the full-employment quantity of labor
an increase in the full-employment quantity of labor
Holding money provides a benefit _______. A. because most money is in bank deposits B. because it is a means of payment C. which is constant no matter how much money is held D. because its opportunity cost is low
because it is a means of payment
When the CPI increases from 200 in 2018 to 210 in 2019 and the nominal wage rate is constant at $10 an hour, the real wage rate _______. A. increases by 10 percent B. is $10 an hour C. increases to $15 an hour D. decreases by 5 percent
decreases by 5 percent
The money multiplier _______. A. increases if the currency drain ratio increases B. increases if banks increase their desired reserve ratio C. is 1 if the desired reserve ratio equals the currency drain ratio D. decreases if banks increase their desired reserve ratio
decreases if banks increase their desired reserve ratio
When the government lowers the income tax rate, _______. A. labor productivity rises and employment decreases B. both labor productivity and potential GDP increase C. employment does not change but labor productivity falls D. employment increases and potential GDP increases
employment increases and potential GDP increases
A government expenditure multiplier _______. A. exceeds 1 B. equals 1 C. equals the tax multiplier D. is less than the tax multiplier
exceeds 1
The Fed's monetary policy instrument is the _______. A. long-term interest rate B. monetary base C. inflation rate D. federal funds rate
federal funds rate
A commodity or token is money if it is _______. A. generally accepted as means of payment B. a store of value C. completely safe as a store of value D. used in a barter transaction
generally accepted as means of payment
The full-employment quantity of labor _______. A. increases as the economy moves along its production function B. increases if labor becomes more productive C. decreases if the income tax rate decreases D. cannot increase because everyone who wants a job has one
increases if labor becomes more productive
The natural unemployment rate _______. A. increases if unemployment benefits become more generous B. increases as the average age of the labor force rises C. increases in a recession D. decreases as firms outsource manufacturing jobs
increases if unemployment benefits become more generous
Job rationing _______. A. increases labor turnover as firms compete for high quality labor B. increases the natural unemployment rate C. has no effect on the natural unemployment rate D. decreases the demand for labor, which lowers the real wage rate
increases the natural unemployment rate
The increase in real GDP per hour of labor that results from an increase in capital per hour of labor ______. A. is smaller at a small quantity of capital than at a large quantity of capital B. is constant and independent of the quantity of capital C. decreases as technology advances D. is larger at a small quantity of capital than at a large quantity of capital
is larger at a small quantity of capital than at a large quantity of capital
Commercial banks' assets include _______. A. government securities and borrowed funds B. bank deposits of individuals and businesses and bank reserves C. bank reserves and the deposits in M2 D. loans to individuals and businesses and government securities
loans to individuals and businesses and government securities
The Fed's "dual mandate" is to achieve _______. A. a government budget surplus and low interest rates B. zero unemployment and a stable means of payment C. a stable quantity of money and stable prices D. low inflation and maximum employment
low inflation and maximum employment
Discretionary fiscal policy to stimulate the economy includes _______. A. raising the tax on gasoline B. the rise in tax revenue collected from businesses as their profits increase C. lowering the tax rate paid by households with middle incomes D. the fall in tax revenue as the economy goes into recession
lowering the tax rate paid by households with middle incomes
The classical growth theory is that real GDP per person ______. A. only temporarily rises and then returns to the subsistence level B. grows forever C. is constant and does not change D. increases as the population grows
only temporarily rises and then returns to the subsistence level
Automatic fiscal policy _______. A. is weak unless the government cuts its outlays to reduce the deficit B. operates as the economy moves along its business cycle C. requires an action of the government D. reduces the deficit as the economy goes into recession
operates as the economy moves along its business cycle
A commercial bank creates money when it does all the following except _______. A. creates deposits B. makes loans C. decreases its excess reserves D. puts cash in its ATMs
puts cash in its ATMs
The Fed fights inflation by _______. A. decreasing the monetary base, which raises the interest rate and increases saving B. lowering the federal funds rate, which lowers interest rates and decreases aggregate demand C. lowering the long-term real interest rate, which increases investment and spurs economic growth D. raising the federal funds rate, which raises interest rates and decreases aggregate demand
raising the federal funds rate, which raises interest rates and decreases aggregate demand
When the price level _______ the inflation rate _______. A. rises rapidly; increases B. rises rapidly; is high C. rises slowly; falls D. falls; is zero
rises rapidly; is high
To fight unemployment and close a recessionary gap, the Fed _______. A. stimulates aggregate supply by lowering the federal funds rate, which increases potential GDP B. increases bank reserves, which banks use to make new loans to businesses, which increases aggregate supply C. increases employment, which increases real GDP D. stimulates aggregate demand by lowering the federal funds rate, which increases the quantity of money
stimulates aggregate demand by lowering the federal funds rate, which increases the quantity of money
The Fed's policy tools include all the following except _______. A. discount rate B. required reserve ratio and open market operations C. quantitative easing D. taxing banks' deposits at the Fed
taxing banks' deposits at the Fed
Money in the United States today includes _______. A. currency in ATMs and people's bank deposits B. the banks' reserves and bank deposits owned by individuals and businesses C. currency and deposits at both banks and the Fed D. the currency in people's wallets, stores' tills, and the bank deposits that people and businesses own
the currency in people's wallets, stores' tills, and the bank deposits that people and businesses own
The CPI bias arises from all of the following items except _______. A. the goods and services bought by poor people B. consumers' responses to price changes C. the improved quality of goods D. the introduction of new goods and services
the goods and services bought by poor people
Households' labor supply decisions are influenced by all of the following except _______. A. the opportunity cost of taking leisure and not working B. unemployment benefits C. the after-tax wage rate D. the number of full-time jobs available
the number of full-time jobs available
In new growth theory, the source of economic growth is ______. A. more leisure B. the persistent want for a higher standard of living C. new and better jobs D. an ever increasing growth rate of capital per hour of labor
the persistent want for a higher standard of living
The BLS reported that the CPI in July 2018 was 252. This news tells you that _______. A. the prices of consumption goods and services have risen, on average, by 152 percent since the base year B. the CPI inflation rate in July was 52 percent a year C. consumer prices rose by 52 percent during the month of July D. consumer prices during July were 252 percent higher than they were during the base year
the prices of consumption goods and services have risen, on average, by 152 percent since the base year
The CPI measures the average prices paid by _______ for _______. A. urban consumers; the average basket of goods and services they buy B. everyone who earns an income; the necessities of life C. all consumers; housing, transportation, and food D. urban consumers; a fixed basket of consumption goods and services
urban consumers; a fixed basket of consumption goods and services
The BLS counts Jody as being unemployed if she _______. A. wants a job and looked for a job last year but has now stopped looking B. had a job last month but not this month C. doesn't have a job because the U.S. factory where she worked cannot compete with cheap Chinese imports D. wants a job and is willing to take a job but after searching last week cannot find a job
wants a job and is willing to take a job but after searching last week cannot find a job
U.S. potential GDP is the value of the goods and services produced in the United States _______. A. in the reference base year B. when the U.S. unemployment rate is zero C. when the U.S. inflation rate is zero D. when the U.S. economy is at full employment
when the U.S. economy is at full employment
If the population growth rate is 2 percent, real GDP per person will double in 7 years if real GDP grows by ______ percent per year. A. 10 B. 7 C. 14 D. 12
12
When the price level is rising at _______ and the real interest rate is 1 percent a year, the nominal interest rate is 3 percent a year. A. 2 percent a year B. 1 percent a year C. 3 percent a year D. 4 percent a year
2 percent a year
Rick withdraws $500 from his savings account, keeps $100 as currency, and deposits $400 in his checking account. A. M1 increases by $400 and M2 decreases by $500. B. M1 does not change, but M2 decreases by $500. C. M1 increases by $500 and M2 does not change. D. M1 does not change, but M2 decreases by $400.
M1 increases by $500 and M2 does not change.
The demand for labor curve shows the relationship between _______. A. the labor force and the real wage rate B. the quantity of labor businesses are willing to hire and the real wage rate C. all households' willingness to work and the real wage rate D. the quantity of labor employed and firms' profits
the quantity of labor businesses are willing to hire and the real wage rate
The supply of labor is the relationship between _______. A. the labor force participation rate and the real wage rate B. the quantity of labor supplied and leisure time forgone C. the real wage rate and the quantity of labor supplied D. firms' willingness to supply jobs and the real wage rate
the real wage rate and the quantity of labor supplied
Of the alternative measures of the price level, _______ overcomes the bias of the CPI and is a better measure of the cost of living because it _______. A. PCEPI excluding food and energy; is less volatile B. PCEPI; uses a current basket of all consumption goods C. GDP price index; includes all goods and services bought by Americans D. GDP price index; uses a current basket
PCEPI; uses a current basket of all consumption goods
Needs-tested spending is _______ fiscal policy because it _______. A. discretionary; is determined by economic hardship B. discretionary; increases when tax revenue increases C. automatic; increases in recession and decreases in expansion D. automatic; increases when the government's budget deficit falls
automatic; increases in recession and decreases in expansion
A marginally attached worker is a person who _______. A. works part time for economic reasons B. works part time for noneconomic reasons C. has no job but would like one and has gone back to school to retrain D. doesn't work, is available and willing to work, but hasn't looked for a job recently
doesn't work, is available and willing to work, but hasn't looked for a job recently
U.S. national debt _______ when the federal government's _______. A. decreases; tax revenue rises faster than outlays B. increases; tax revenue rises faster than outlays C. decreases; outlays exceed tax revenue D. increases; outlays exceed tax revenue
increases; outlays exceed tax revenue
The increase in real GDP per hour of labor that results from an advance in technology makes labor ______ productive ______. A. more; at all quantities of capital B. more; and capital less productive C. less; and capital more productive D. more; only at a large quantity of capital
more; at all quantities of capital
An open market _______ of $100 million of securities _______. A. purchase; increases bank reserves B. sale; increases bank reserves C. purchase; decreases the Fed's liabilities D. sale; increases the Fed's liabilities
purchase; increases bank reserves
A monetary policy rule is _______ to discretionary monetary policy because _______. A. superior; a rule keeps inflation expectations anchored B. inferior; a rule makes it harder for people to forecast the inflation rate C. equivalent; the Fed uses its discretion to set the rule D. superior; discretion limits what the Fed can do in a financial crisis
superior; a rule keeps inflation expectations anchored