econ final

2 Use the "Demand for Loanable Funds" Figure 29-2. According to the accompanying figure, when the interest rate is 6%, the quantity demanded of loanable funds will equal:

$50 billion

If the disposable income increases by $1000 and the consumer spending increases by $800, then the marginal propensity to consume is:

(800/1000)=8/100=2/25=0.8)

use the "alphaland and omegaland" The opportunity cost of producing 1 tire in alphaland is ___ radios, while the opportunity cost of producing 1 tire in omegaland is ___ radios

.5, 2

6 Use Table 11-5. The value of Year 4's output in real dollars is:

36 (6x6=36)

If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is:

5%

(Table: Supply of Lemonade) Look at the table Supply of Lemonade. If the price of lemonade is $1 per cup, the total quantity of lemonade supplied will be:

90 cup

Use the "Demand for Coconuts" Figure 5-1. If coconuts are considered a normal good and the overall income level of consumers is falling, then the movement that would take place in the model could be:

A to C

If the British pound appreciates against the dollar, this will make:

British exports more expensive but lower the price of American exports to Britain.

Use the "International Capital Flows" Figure 41-2. At an interest rate of 4%, the excess of loanable funds supplied by ______ lenders will be exported to ______ borrowers.

British, American

In the soft drink market, an increase in the price of sugar, a necessary ingredient for soft drinks, and an increased concern about tooth decay caused by the consumption of soft drinks will result in which of the following?

Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same

The economy is in a recession. Which of the following is a fiscal policy that the government should adopt to strengthen the economy?

Expansionary fiscal policy increases the level of aggregate demand, either through increases in government spending or through reductions in taxes. Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.

Assume an economy that is contracting and unemployment is rising. Which of the following would be a logical explanation for a sudden fall in the unemployment rate even while the economy continues to contract?

Fall in unemployment = the output gap is positive (this is an inflationary gap); inflationary gap means that the aggregate output is exceeding potential output

Use the "Monetary Policy and the AD-SRAS Model" Figure 31-8. An increase in the money supply is most likely to cause a shift:

From AD to AD'.

Which of the following schools of thought is the MOST likely to advocate the use of fiscal policy in fighting recessions?

Keynesian economics is a school of thought that is MOST likely to advocate the use of fiscal policy in fighting recessions.

Sam, who is 55 years old and has been a steel worker for 30 years, is unemployed because the steel plant in his town closed and moved to Mexico. Sam is experiencing

Sam is experiencing structural unemployment

Suppose that political instability in the Middle East temporarily interrupts the supply of oil to the United States. Which of the following is most likely to occur?

Short run aggregate supply curve shifts left, output decreases, prices increase

Which one of the following price indices is commonly used to measure the cost of living?

The CPI (consumer price index)

Which of the following statistics is used to measure changes in the prices that firms pay for goods and services?

The PPI (producer price index)

Which are the two markets represented in the simplest circular-flow diagram?

The market for goods and services and the market for factors of production

Which of the following statements is broadly agreed upon by modern macroeconomists?

The textbook states that modern macroeconomists believe: monetary policy can be used to shift the aggregate demand curve and reduce economic instability; fiscal policy can shift the demand curve; the natural rate hypothesis is accepted (can limit fluctuations, can't keep it below the natural rate); monetary and fiscal policy should have limitations; discretionary fiscal policy is usually counterproductive; monetary policy should play the same role in stabilization policy; central bank should be independent, insulated from political pressures to avoid a political business cycle; discretionary fiscal policy should be used sparingly, because the policy lags and there are risks of a political business cycle (any of these are possible)

A floating exchange rate is:

This is an exchange rate regime where the value of a currency is allowed to be determined solely by the demand for and supply of the currency on the foreign exchange market.

The long-run aggregate supply curve is

a curve that shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible

inflation is a situation where:

a general increase in prices and fall in the purchasing value of money

Greenhouse gas emission is an example of:

a negative externality

too little spending in an economy often leads to:

a recession

The inflation tax is:

a reduction in the value of money held by the public (caused by inflation)

Scarcity in economics means:

a resource is scarce when there is not enough of it available to satisfy the society

Use Table 8-1. In response to popular anger over the high price of fried Twinkies, the government imposes a price ceiling of $1.20 per fried Twinkie. From this table, the price ceiling causes

a shortage of 3,000 fried twinkies

Diminishing returns to physical capital implies that, when human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to:

a smaller increase in productivity.

Diminishing returns to physical capital means that, when the amount of human capital per worker and the state of technology are held fixed, each increase in the amount of physical capital per worker leads to

a smaller increase in the marginal product of labor.

Purchasing power parity refers to:

adjustments in exchange rate conversions that take into account the differences in true cost of living across countries.

Monetary policy attempts to affect the overall level of spending in the economy by changes in

aggregate demand

If a county follows a contractionary monetary policy, with everything else remaining unchanged, then it leads to

an increase in interest rates and an appreciation in currency

Reserve requirements:

are the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals

Government spending and taxation rules that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands are known as:

automatic stabilizers

The market in which foreign currencies are traded is known as the:

balance of payments

One of the most important types of infrastructure that government can provide is:

basic health measures such as a clean water supply and disease control.

According to the Keynesian view, if this economy shifts from AD2 to AD1, let's say due to a large increase in government spending, then

both the price level and the real GDP will increase.

Physical capital would include:

buildings, machinery, office or warehouse supplies, vehicles, computers, etc (any tangible, man-made goods that assist in the process of creating a product or service)

the short run alternation between economic downturns, recessions, and economic upturns and expansions is known as the:

business cycle

the federal reserve system is the ___ for the United States

central bank

The marginal propensity to consume is equal to

change in consumer spending divided by change in disposable income (𝚫consumer spending/𝚫disposable income)

which of the following factors cause a movement along the demand curve

change in the price of the good causes a movement along the demand curve

real GDP is nominal GDP adjusted for

changes in prices

Fiscal policy attempts to affect the level of overall spending in the economy by changes in

changes in tax policy or government spending.

The concept of monetary neutrality describes a situation in the long run when:

changes in the money supply have no real effects on the economy

If an economy finds itself in a liquidity trap, this means that

conventional monetary policy is ineffective because nominal interest rates are up against the zero bound

If goods A and B are substitutes, a decrease in the price of good B will

decrease the demand for good A

An automatic stabilizer may be:

decreasing the amount of taxes households pay, or the govt increasing taxes when the economy expands

Total income households have after paying taxes and receiving government transfers is called:

disposable income.

use the "consumer and capital goods". The movement from curve 1 to curve 2 indicates:

economic growth

Economists frequently use GDP per capita to better reflect:

economic growth and/or differences in living standards across countries.

Use the "DVD Market" Figure 6-2. At a rental price of $6, there will be

excess supply of 20 DVD rentals

The simplest circular-flow model shows the interaction between households and firms. In this model

firms supply goods and services to households, which, in turn, supply factors of production to firm

The modern tools of macroeconomic policy are

fiscal and monetary policy

In the long run, wages and prices are considered to be:

flexible

ixed exchange rates are determined by the:

government

Use the "International Capital Flows" Figure 41-2. At an interest rate of 4%, the quantity of loanable funds demanded by American borrowers is ______ the quantity of loanable funds supplied by American lenders.

greater than

The skills, training, and education possessed by workers contribute to economic growth and are known as:

human capital

An increase in the price level that is extremely rapid (say 400% per year) is called:

hyperinflation

Sticky wages and prices occur:

in the short run

f the interest rate on CDs increases from 5% to 10%, the opportunity cost of holding money will ______ and the quantity of demanded money will __

increase, decrease

Expansionary fiscal policy:

increases aggregate demand

When the budget is in deficit, the government generally:

increases the public debt

Increases in the average level of prices is called:

inflation

Stagflation is a combination of:

inflation and stagnating (falling) aggregate output

Roads, telephone lines, power facilities, and schools are examples of a nation's:

infrastructure

The money demand curve shows the

inverse relationship between quantity of money demanded and the interest rate.

A supply shock:

is an event that suddenly increases or decreases the supply of a commodity or service

When a corporation borrows money from lenders in exchange for a fixed rate of return and a given maturity, the corporation is

issuing bonds

When a corporation borrows money from lenders in exchange for a fixed share of the firm's assets and potential profits, the corporation is

issuing stocks

A binding price ceiling is designed to

keep prices low

Use the "Supply of Loanable Funds" Figure 29-4. According to the accompanying figure, when the interest rate rises from 6% to 8% then the:

loanable funds rise from $60 to $80 billion dollars

If the Federal Reserve wanted to increase the money supply, it could

lower the reserve requirement, decrease the discount rate, and buy bonds on the open market.

A bank run occurs when

many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future.money supply in the economy and influence interest rates.

All of the following are the responsibilities of the Fed EXCEPT:

mint bills and coins Functions of the Federal Reserve: 1) provide financial services, 2) supervise and regulate banking institutions, 3) maintain the stability of the financial system, 4) conduct monetary policy.

Fiat money is

money that has no intrinsic value but that has value as money because a government decreed that it has value for that purpose.

The short-run Phillips curve shows:

negative short run relationship between the unemployment rate and the inflation rate

Use the "Supply and Demand" Figure 8-6. In the market shown in the figure, a price ceiling of P1 causes

no change to the market

macroeconomics deals with:

overall ups and down in the economy

Which of the following choices would be a factor that contributes to a nation's rapid long-run economic growth?

physical capital, human capital, or technology.

Use the "Supply and Demand in the Orange Juice Market" Figure 7-3. Assume that a hurricane hits Florida. In response, what would be the most likely equilibrium point in the orange juice market illustrated?

point A

use the "consumer and capital goods" Point Z:

point Z in unattainable, all other things unchanged

Contractionary monetary policy:

reduces aggregate demand

gains from trade arise because of:

specialization in production

Investment spending refers to

spending by firms rather than by the government

Stagflation is a combination of

stagnant economic growth, high unemployment, and high inflation

Use the "Short-Run Determination of the Interest Rate" Figure 29-11. If the money supply is currently at MS1 and the central bank chooses to buy bonds, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the:

supply of loanable funds from S1 to S2 and a lower interest rate

The term "Human capital" describes:

the improvement in labor created by the education and knowledge of members of the workforce.

Use the "Classical Versus Keynesian Macroeconomics" Figure 35-1. According to the classical view, if this economy shifts from AD2 to AD1, let's say due to a large increase in government spending, then:

the price level will increase, but real GDP will not change.

microeconomics deals with:

the study of how people make decisions and how those decisions interact

The labor force is defined as

the sum of the employed and the unemployed- meaning people who are currently working and the people who are looking for work

According to the liquidity preference model, the equilibrium interest rate is determined by:

the supply and demand for money

A direct relationship between price and quantity is represented by

the supply curve

Unemployment rates tend to decrease when:

there's an expansion in the economy

The government has a budget deficit if:

total revenues are less than total expenditures

If a country sold more goods and services to the rest of the world than they purchased from other countries, then the country has a:

trade surplus

When the dollar value of the euro is high:

travel in the U.S. is less expensive for Europeans.

When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from:

using commodity money to using commodity-backed money.

Banks create money when they:

with loans