ECON Final Exam

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In year 1 the CPI is 174, and in year 2 the CPI is 190. If Sarah's salary was $49,800 in year 1, what salary in year 2 would cause her to exactly "keep up with inflation"?

$54,379

If checkable deposits in Bank A total $620 million and the required reserve ratio is 9 percent, then required reserves at Bank A equal

$55.8 million

In 2020, the U.S. GDP per capita is approximately

$58,000

The movie "Return of the Jedi" earned $264 million in 1983 when it was released. The CPI in 1983 was 97.8 and the CPI in 2012 was 226.665. Approximately how much did the movie earn in 2012 dollars?

$612 million

If the Fed injects $600 million of new money into the economy, what is the maximum change in the money supply if the required reserve ratio is 8.5%?

$7,058.8 million

Suppose that net exports are -$300 billion and exports are $500 billion. Imports equals

$800 billion

If the Fed injects $800 million of new money into the economy, what is the maximum change in the money supply if the required reserve ratio is 8.5%?

$9,411.8 million

The _____________ is the part of the budget deficit that is a result of a downturn in economic activity.

cyclic deficit

When the Fed purchases securities from a bank, it __________ reserves and ____________ the money supply.

increases; increases

A PPF is bowed outward as a result of

increasing opportunity costs

Expansionary fiscal policy actions include __________ government spending and/or __________ taxes, while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.

increasing; decreasing; decreasing; increasing

Economists believe that people's wants are

infinite

An overall rise in prices is called:

inflation

The consequence of expansionary fiscal policy is

inflation

A savings deposit is a type of

interest-earning account at a bank or thrift institution in which funds can be withdrawn at any time without a penalty payment.

The law of demand states that price and quantity demanded are

inversely related, ceteris paribus.

As business taxes increase

investment spending decreases

As expected profitability increases

investment spending increases

Suppose a stock market bubble inflates stock prices to new records. What will happen to overall consumption in this economy?

it will increase

The physical ad mental talents people bring to production processes comprise the resource called

labor

According to the quantity theory of money, increasing the money supply

leads to inflation

If the government increases the income tax rate, consumers will have _________ to spend and will _________ their consumption.

less; reduce

An economy is productive efficient if it produces

maximum output with given resources and technology

A price ceiling is a government-mandated

maximum price above which legal trades cannot be made.

If the minimum wage law sets a price floor above the equilibrium wage in the market for unskilled labor, then the

minimum wage will create a surplus of unskilled labor

Money's basic advantage as compared to barter is that

money reduces transaction costs.

Opportunity cost is the __________ alternative forfeited when a choice is made.

most highly-valued

A change in the quantity demanded of Real GDP is graphically represented as a

movement from one point on the AD curve to another point on the same curve.

According to the equation of exchange, if GDP equals $4 trillion and the money supply equals $1 trillion, the velocity of money

must be 4

If foreign income decreases

net exports will likely decrease

Price indexes allow us to convert __________ measures of output into __________ measures of output.

nominal; real

If the demand for computer software rises as incomes rise, then computer software is a (an)

normal good

The unemployment rate equals the

number of unemployed persons divided by the civilian labor force.

A federal budget deficit

occurs when government expenditures exceed tax revenues.

The chief difference between one-shot inflation and continued inflation is that

one-shot inflation is a single increase in the price level and continued inflation is a sustained increase in the price level.

Which of the following will not shift the LRAS curve?

personal income taxes

The civilian non-institutional population can be broken down into two groups:

persons not in the labor force and persons in the labor force.

Attempts to determine "what is" are part of __________ economics.

positive

The minimum wage is an example of a

price floor

GDP can rise as a result of a rise in __________________, and Real GDP can rise as a result of a rise in _______________________.

prices or output; output only.

Crowding out results in a decrease in

private spending

The U.S. income tax is currently a __________ tax.

progressive

The total amount of money that a government owes at any one point in time is called:

public debt

If the Fed wants to increase the money supply through an open market operation, it will

purchase government securities.

Macroeconomists define consumption as

purchases by the household sector

An aggregate demand (AD) curve shows the

real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.

A price ceiling set below the equilibrium price will

result in a shortage of a good

A price floor set above the equilibrium price will

result in a surplus of the good

The expectation of higher future income is a

rightward shifter of the AD curve

A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts the AD curve to the __________.

rise; right

An increase in the quantity of resources

shifts the PPF rightward

M2 includes M1 plus all of the following except

short-term U.S. government securities.

Transfer payments are

spending that transfers resources from the government to individuals.

Assume that Ms. Sawyer's salary is $22,000, up from $20,000 last year, while the CPI is 165 this year, up from 150 last year. This means that Ms. Sawyer's real income has

stayed the same

Which of the following is a correct listing of money's functions?

store of value, medium of exchange, unit of account

The deficit that exists when the economy operates at full employment is called the __________ deficit.

structural

The _____________ is the part of the budget deficit that would exist even if the economy were operating at full employment.

structural deficit

Underground activities are not counted in GDP because

there are no written records of underground activities.

The best reason economists take only final goods and services into account when calculating GDP is that

they want to avoid the problem of double counting.

The United States is divided into __________ Federal Reserve districts, each with a district bank.

twelve

Points outside (or beyond) the PPF are

unattainable

A person in the civilian labor force falls into one of two categories:

unemployed or employed.

The short-run aggregate supply curve is

upward sloping

The sale of __________ goods is omitted from current GDP because __________.

used goods; these goods were counted in an earlier year

Normative economics is concerned with

value judgments and opinions

The long-run aggregate supply (LRAS) curve is

vertical

On a supply-and-demand diagram, equilibrium is found

where the demand and supply curves intersect.

If Real GDP is less than Natural Real GDP, the economy is in

a recessionary gap

An advance in technology causes

a rightward shift in the supply curve.

At a price below the equilibrium price, there is

a shortage

At a price above the equilibrium price, there is

a surplus

If policymakers increase taxes, they are enacting

contractionary fiscal policy

Suppose that consumption spending is $4,200 billion, spending on durable goods is $1,200 billion, and spending on services is $2,000 billion. What does spending on nondurable goods equal?

$1,000 billion

Ninth National Bank holds $200 million in checkable deposits and $18,000,000 in total reserves. With a required reserve ratio of 8 percent, how much in excess reserves is Ninth National holding?

$2,000,000

If the money supply is $400, velocity is 6, then in the equation of exchange, PQ is

$2,400

If checkable deposits in Bank A total $350 million and the required reserve ratio is 7.5 percent, then required reserves at Bank A equal

$26.25 million.

Tenth National Bank holds $285 million in checkable deposits and $35 million in reserves. With a required reserve ratio of 11 percent, how much in excess reserves is Tenth National holding?

$3.65 million

If Real GDP is $8,000, the money supply is $3,100, and velocity is 4, then the price level is

1.55

Suppose the civilian non-institutional population equals 250,000; there are 132,500 employed persons and 10,000 unemployed persons. How many people are not in the labor force?

107,500

Which of the following items is a final good?

a sweater purchased by someone in a department store

The CPI was 238 in one year and 244 the following year. How much did prices rise between these two years?

2.52 percent

Consider two points on the PPF: point A, at which there are 10 apples and 20 pears, and point B, at which there are 7 apples and 21 pears. If the economy is currently at point A, the opportunity cost of moving to point B is

3 apples

If the nominal interest rate is 4 percent and the expected inflation rate is 1 percent, the real interest rate is

3 percent

Look at the following data: The frictional unemployment rate is 3 percent, the natural unemployment rate is 6.5 percent, and the cyclical unemployment rate is 2.4 percent. The structural unemployment rate is __________ percent and the actual unemployment rate (in this economy) is __________ percent.

3.5; 8.9

If the GDP of Macroland is $900,000,000 and the country has a population of 250,000 people, what is the GDP per capita?

3600

If M = $500, P = $20, and Q = 100, then V is

4.0

Suppose you receive a bonus at work worth $10,000. If your MPC is 0.5, how much of the additional $10,000 will you spend?

5000

An increase in the price of oil will cause

a leftward shift in the SRAS curve

As interest rates rise, the ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S. price level and a(n) ________________ in Real GDP.

AD; leftward; decrease; decrease

As the U.S. dollar appreciates, the U.S. ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S. price level and a(n) _________________ in Real GDP in the United States.

AD; leftward; decrease; decrease

An increase in the price of good B caused an increase in the demand for good C. This indicates that

B and C are substitutes

Suppose a drop in stock prices makes people feel less wealthy. This would cause __________ the economy's AD curve.

a leftward shift of

If you are hired by a US owned consulting company with offices in Brazil and you work there, your work will contribute toward:

Brazil's GDP, because you are working in Brazil.

In the equation of exchange, the money supply multiplied by velocity equals

GDP

In year 1 the CPI is 140, and in year 2 the CPI is 160. From year 1 to year 2, Chiang's salary rises from $42,000 to $47,000, and Marta's salary rises from $55,000 to $66,000. Who is "more than keeping up with inflation"?

Marta

Through war, many of the factories in country 1 are destroyed and many of its people are killed. As a result, the country's

PPF after the war has probably shifted to the left compared to its PPF prior to the war.

If a person uses money to buy a pair of shoes, money is functioning as

a medium of exchange

Suppose the economy goes from a point on its production possibilities frontier (PPF) to a point below that PPF. Assuming that the PPF has not shifted, this could be due to

a new law that interferes with economic efficiency

The space on the freeway is fixed at any instant of time. A supply cute that shows this is

a perfectly vertical line

"Economic growth" has occurred if the

Real GDP this year exceeds the Real GDP of last year

An increase in labor productivity shifts the

SRAS curve rightward

After an adverse supply shock occurs, the ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S. price level and a(n) ________________ in Real GDP.

SRAS; leftward; increase; decrease

Which of the following is a normative macroeconomics statement?

The central bank should increase the nation's money supply.

What is personal wealth

The value of someone's assets minus her debts

When Toyota Motor Company produces a new pickup truck in San Antonio, Texas, it counts as

US GDP

Can a one-time increase in the supply of money cause one-shot inflation?

Yes, because it shifts the aggregate demand curve rightward.

Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve?

a change in price level

If increasingly more units of good Y must be given up as each successive unit of good X is produced, then the PPF for these two goods is

a downward-sloping curve that is bowed outward

Suppose Congress increases income taxes. This is an example of

contractionary fiscal policy.

Fiscal policy most directly affects the economy by increasing or decreasing

aggregate demand

If Max's demand for hot dogs falls as his income rises, then for Max hot dogs are

an inferior good

Points inside (or below) the PPF are

attainable but productive inefficient

The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.

average

Which measure of inflation best reflects underlying trends in the economy?

core inflation

Severe oil shortages in the United States during the 1970s created

cost-push inflation

Fractional reserve banking is a term used to describe a banking system whereby

banks hold reserves equal to only a fraction of their deposit liabilities

Since 1940, the US government has generally had a:

budget deficit

Which of the following pairs of goods would be most likely to be substitutes?

butter and margarine

Open market operations are the

buying and selling of government securities by the Fed.

To macroeconomists, investment is mainly the purchases of goods and services

by businesses

As personal income taxes increase

consumption decreases

In the United States, the largest expenditure component in GDP is

consumption expenditures

As wealth increases

consumption increases

The expenditure approach to measuring GDP sums

consumption, investment, government purchases, and net exports.

Produced goods used as inputs for the production of other goods comprise the resource known as

capital

A rise in wage rates

causes the SRAS curve to shift leftward

The Federal Reserve System is the

central bank of the United States.

Fiscal policy refers to

changes in government expenditures and taxation to achieve particular economic goals.

Monetary policy refers to

changes in the money supply to achieve particular economic goals.

M1 is comprised of currency held outside banks + traveler's checks + __________.

checkable deposits

Decision making "at the margin" means making a choice based on __________ of a decision.

comparing the additional benefits and costs

As the price of good X rises, the demand for good Y falls. Therefore, goods X and Y are

complements

When economists speak of scarcity, they are referring to the

condition in which people's wants outstrip the limited resources available to satisfy those wants

The sale of a government security by the Fed

decreases the supply of money

As income taxes rise, disposable income __________, causing __________ the AD curve.

decreases; a leftward shift of

Deflation _________ consumption and investment, which ___________.

decreases; decreases aggregate demand.

A temporary change in the price level caused by changes in the business cycle is known as

demand-pull inflation

A decrease in the money supply will shift the aggregate __________ curve to the __________.

demand; left

Suppose the real exchange rate of 115 Japanese yen to the dollar moves to 105 yen to the dollar. The dollar has __________, making Japanese goods __________ expensive for Americans.

depreciated; more

Which of the following is not a major responsibility of the Fed?

determining tax rates

The cyclical unemployment rate is defined as the __________ unemployment rates.

difference between the existing (actual) and the natural

The law of supply states that price and quantity supplied are

directly related, ceteris paribus.

The interest rate that a commercial bank pays when it borrows from the Fed is the __________ rate.

discount

What is the most prominent rationing device you will likely find at your campus bookstore?

dollar price

Aggregate demand curves are

downward sloping

Monetarists can be described as a group of macroeconomists who

emphasize the importance of the money supply as a determinant of macroeconomic activity.

Reserves held beyond the required amount are called __________ reserves.

excess

Core inflation

excludes goods with historically volatile prices changes.

If congressional policymakers aim to increase aggregate demand, they will likely enact:

expansionary fiscal policy

Net exports equal

exports minus imports

Government purchases consist of the total dollar amount(s) spent on goods and services by the

federal, state, and local governments

Gross Domestic Product (GDP) is the total market value of all

final goods and services produced annually within a country's borders.

The first bankers were

goldsmiths

Which of the following is not one of the four broad categories of resources?

government

A balanced budget occurs when

government expenditures equal tax revenues

When prices of food and energy are added to core inflation, we get

headline inflation

The unique feature of a progressive income tax is that the higher one's income (up to some point), the __________ one pays.

higher the tax rate

Microeconomics is the branch of economics that deals with

human behavior and choices as they relate to relatively small units --- an individual, a firm, an industry.

If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is

in an inflationary gap

If the Fed purchases government securities from commercial banks, the reserves of the banking system will immediately

increase by the amount of the purchase

To decrease the money supply, the Fed may

increase the required reserve ratio.

Disposable income is

that portion of personal income that can be used for consumption and saving.

When a commercial bank borrows from the Fed,

the bank can make more loans.

The marginal propensity to consume is calculated as:

the change in consumption divided by the change in disposable income

Barter is

the exchange of goods and services for goods and services without the use of money.

The opportunity cost of attending college is

the highest valued alternative one forfeits to attend college.

The higher the opportunity cost of attending college,

the less likely an individual will go to college

The simple quantity theory of money predicts that if

the money supply rises by 10 percent, then the price level rises by 10 percent.

"Full employment" is said to exist when the unemployment rate equals

the natural unemployment rate

Which of the following is an intermediate good?

the potatoes a farmer sell to a factory to be used in the production of potato chips

The Fed can change the money supply by changing

the required reserve ratio

An advance in technology commonly refers to the ability to produce

the same output with a smaller quantity of resources more output with a fixed quantity of resources

Entrepreneurship is

the talent for organizing the use of land, labor and capital, among other things.


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