econ macro final

If an economy is growing at 10%, how long will it take for $1,000 to turn into $4,000? 7 years 21 years 14 years 28 years

14 years

(Table) According to the table, what is the labor force of this economy? 500 300 50 350

350 (labor force = employed + unemployed)

If a one-year bond with a face value of $1,000 is sold for $950, what is the bond's approximate yield? 95% 1.05% 9.5% 5.26%

5.26%

The consumer price index measures private goods as well as public goods. False True

False

Which assumption is NOT a problem related to using the consumer price index (CPI) to accurately state the rate of inflation? The CPI does not account for quality changes. The CPI does not include new products. The CPI assumes that people do not substitute goods. The CPI does not deal with producer prices.

The CPI does not deal with producer prices.

If an employer uses an escalator clause to determine an employee's raise each year, in an inflationary environment, the employer is more likely than the employee to want to use the personal consumption expenditures price index in this clause. True False

True

The determinants of aggregate demand include the components of GDP: consumption, investment, government spending, and net exports. False True

True

Thomas Malthus believed that the geometric growth of the population and the arithmetic growth of the food supply would never be altered. False True

True

Which of these would NOT shift the investment demand schedule? a change in interest rates a change in expectations a change in operating costs a change in technology

a change in interest rates

If the economy shown in the figure begins at point C, an increase in consumer confidence leads to what changes in the short run? demand-pull inflation an increase in unemployment cost-push inflation a decline in tax revenue

demand-pull inflation

(Figure: Simple Keynesian Model) In the figure, suppose investment has increased from AE = C + I0 to AE = C + I1. The multiplier equals 2.5. 0.4. 5. 0.6.

2.5

Compared with stocks, bonds tend to reward investors with a higher average return on investment over the long run. False True

False

Money leakages make it more difficult to use monetary policy to pull the economy out of a recession. True False

True

To convert a nominal value to a real value in dollar terms, the base year index must be set at 100. False True

True

(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals 0.2. 0.5. 0.4. 0.6.

0.2

_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy. Reducing; increasing; lowering Reducing; increasing; raising Increasing; reducing; raising Increasing; increasing; lowering

Increasing; increasing; lowering

In which situation is a country LEAST likely to be producing on its production possibilities curve? The average education level is of the fourth grade. There are legal disputes over the ownership of 15% of the factory buildings in the country. The land is dry and has low productivity in farming. There are large legal penalties for breaking a contract.

There are legal disputes over the ownership of 15% of the factory buildings in the country.

One argument against using taxation to pay off the public debt is that it will redistribute wealth from richer bondholders to poorer people who do not own bonds. richer bondholders to richer people who do not own bonds. poorer people who do not own bonds to richer bondholders. poorer bondholders to richer people who do not own bonds.

poorer people who do not own bonds to richer bondholders.

Suppose the town of Treeville has a population of 200, of which 120 are in the labor force. Of those in the labor force, 100 are employed and 20 are unemployed. The unemployment rate in Treeville is 20%. 60%. 17%. 10%.

17%

Which statement is an example of an open market operation? The central bank sells bonds to the public via the commercial banking system. The central bank lowers the interest rate from 5% to 3% on the loans it gives to commercial banks. A bank loans out all but 5% of its funds to hold in storage. Naftali runs a bazaar in Baghdad selling odds and ends type trinkets to tourists.

The central bank sells bonds to the public via the commercial banking system.

If the economy shown in the figure begins on AD1 and SRAS1, what will happen in the short run and long run if the price of oil rises significantly? The economy will move from point C to A to B. The economy will move from point D to C to E. The economy will move from point C to E to B. The economy will move from point D to C to B.

The economy will move from point C to A to B.

If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____. 25; less than 25 25; greater than 25 4; equal to or less than 4 250; greater than 250

4; equal to or less than 4

_____ unemployment is the result of changes in the business cycle. Frictional Structural Cyclical Seasonal

Cyclical

(Table) According to the table, which country will have the lowest real GDP per capita in 23.67 years? Nomia Coland Macia Ecoland

Nomia (multiply countries by percent, find lowest)

A production function says output per worker equals A × f(L/L, K/L, H/L, N/L) and tells us all of these EXCEPT _____ will lead to a better standard of living. more natural resources more people increases in capital more human capital

more people

f the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. recessionary; increase; $100 recessionary; increase; $250 inflationary; decrease; $250 inflationary; decrease; $100

recessionary; increase; $100

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment? increase spending by $10 billion reduce spending by $25 billion increase spending by $25 billion reduce spending by $100 billion

reduce spending by $25 billion

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded. left; decrease left; increase right; increase right; decrease

right; increase

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. inflationary; decrease; $100 recessionary; increase; $100 inflationary; decrease; $250 recessionary; increase; $250

recessionary; increase; $100

What is a difference between the typical structure of a retirement savings account (401(k)) and an individual retirement arrangement (IRA)? IRAs typically earn interest, but 401(k) accounts typically earn dividends. IRA contributions are typically made with pretax income while 401(k) contributions are made with post tax income. Taxes are due on withdrawals from an IRA but not on withdrawals from a 401(k) account. Employers often match 401(k) contributions, but they do not match IRA contributions.

Employers often match 401(k) contributions, but they do not match IRA contributions.

What are the determinants of short-run aggregate supply? changes in government spending, taxes, and business and inflationary expectations changes in input prices, taxes, and business and inflationary expectations changes in education, taxes, and business and inflationary expectations changes in input prices, taxes, and technology

changes in input prices, taxes, and business and inflationary expectations

Under which condition would the Fed be most likely to engage in its role as the lender of last resort? when a stock market crash causes people to sell their stocks and purchase bank CDs instead if a lack of confidence in the financial system causes savers to withdraw money from banks when throngs of borrowers apply for loans as the housing market picks up when record amounts of student loans are paid back before interest rates rise

if a lack of confidence in the financial system causes savers to withdraw money from banks

Bonds are considered to be _____ than stocks because _____. riskier; stockholders are less affected by a firm's bankruptcy riskier; stockholders earn dividends and bondholders do not less risky; bondholders are less affected by a firm's bankruptcy less risky; bondholders earn dividends and stockholders do not

less risky; bondholders are less affected by a firm's bankruptcy

Bond prices and their yields are _____ because the bond's face value and _____are fixed, forcing its _____ to change in response to changing market conditions. positively related; sales price; coupon payment positively related; coupon payment; sales price negatively related; coupon payment; sales price negatively related; sales price; coupon payment

negatively related; coupon payment; sales price

A bond has a face value of $1,000 and an annual interest payment of $44. What is its coupon rate, and what is its yield if it is sold for $1,100 in the secondary market? 4.4% and 4.0%, respectively 4.4% and 10%, respectively 4.0% and 4.4%, respectively 44% and 4.4%, respectively

4.4% and 4.0%, respectively

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 remains in the checking accounts of the loan recipients. The bank has $50,000 cash on hand, and the reserve requirement is 25%. The reserve ratio for this bank is _____, and it _____ meeting its reserve requirement. 20%; is 0.002%; is not 53.76%; is 186%; is not

53.76%; is

If the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be? $50 million $11 million $275 million 60 million

60 million

Last year, the consumer price index was 115 while the consumer price index for this year is 125. The rate of inflation is 9.2%. 10.8%. 8%. 8.7%.

8.7% (multiply before by percent to match after)

Knowing the marginal propensity to consume makes it possible to calculate the marginal propensity to save. True False

True

Figure: Simple Keynesian Model) In the figure, equilibrium savings equals _____ when investment is at AE = C + I0, and _____ when investment is at AE = C + I1. $50; $150 $0; $0 $100; $200 -$50; -$200

$100; $200

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. Its current level of total reserves is _____. If the reserve requirement is increased to 25%, the new level of excess reserves would be _____. $15,000; $4,000 $25,000; $3,000 $30,000; $5,000 $12,000; $2,000

$12,000; $2,000

When a perpetual bond with a face value of $1,000 is issued, general interest rates are 3%, so the annual interest payment is _____. After the bond is issued, market interest rates rise to 4%, which forces the price of the bond to _____ to _____. $30; fall; $750 $30; rise; $750 $3; fall; $75 $3; rise; $750

$30; fall; $750

(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals _____, the MPC equals _____, and the APC equals _____. $300; 0.4; 0.5 -$80; 0.6; 1.27 $80; 0.6; -0.27 -$120; 0.4; -0.7

-$80; 0.6; 1.27

(Figure: Effects of Policy Shifts) If the economy starts below full employment, an expansionary fiscal policy will shift the aggregate demand curve from _____ to _____, and equilibrium will move from point _____ to _____. AD0; AD1; b; a AD1; AD0; a; b AD1; AD0; b; a AD0; AD1; a; b

AD0; AD1; a; b

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium? Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output. Aggregate demand falls causing prices to fall; at lower prices, aggregate demand then rises back to its original level, leading to a return to the original price and output levels. Short-run aggregate supply falls causing unemployment; with less output, investment falls, leading to a reduction in long-run aggregate supply and a new long-run equilibrium with lower output and higher prices. Short-run aggregate supply falls; then aggregate demand falls, leading to a new long-run equilibrium with lower prices and lower output.

Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output.

Which statement is NOT correct? Discouraged workers are considered part of the leisure class and not part of the labor force. Discouraged workers are not classified as unemployed. Discouraged workers have stopped actively seeking work. Discouraged workers are considered underemployed.

Discouraged workers are considered underemployed.

Esteban's annual salary is $80,000, of which he saved $20,000. When he received his bonus of $10,000, he spent $8,000 on home renovations and saved the remaining $2,000. Which statement is TRUE? Esteban's average propensity to consume increased. Esteban's average propensity to consume decreased. Esteban's average propensity to consume cannot be calculated. Esteban's average propensity to consume stayed the same.

Esteban's average propensity to consume increased.

Which statement(s) is/are TRUE regarding the paradox of thrift?I. People intend to save less but their actions actually lead to an increase in savings.II. For the paradox of thrift to occur, investment must be positively related to income.III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings. II and III only I and II only I, II, and III II only

II only

Which statement regarding discretionary and mandatory spending is correct? Discretionary spending is authorized by permanent laws. Mandatory spending may act as an automatic stabilizing force in the macro economy. Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s. Mandatory spending programs include national defense, income security, and education.

Mandatory spending may act as an automatic stabilizing force in the macro economy.

Order the following saving mechanism in descending order of liquidity. Most liquid cash in your pocket checking account savings account corporate bond a house Least liquid

Most liquid cash in your pocket checking account savings account corporate bond a house Least liquid

Which situation indicates that total output in a country has grown the most when the starting output is the same in all situations? Output per worker remains constant while the labor force grows by 11%. Output per worker grows by 11% while the labor force remains constant. Output per worker grows by 10% while the labor force grows by 10%. Output per worker grows by 4% while the labor force grows by 12%.

Output per worker grows by 10% while the labor force grows by 10%.

Which change is likely to increase wages the MOST in a country? The capital-to-labor ratio rises by 2%. The labor force grows by 2%. Drainage of swampy land allows 2% more land to be farmed. Since the growth rate is 2% in all listed situations, wages would increase equally in all of them.

The capital-to-labor ratio rises by 2%.

If the economy shown in the figure begins on AD1 and SRAS1, what will happen in the short run and long run if the government begins a sustained period of increased spending? The economy moves from point D to C to A. The economy moves from point D to C to E. The economy moves from point C to E to B. The economy moves from point C to A to B.

The economy moves from point C to E to B.

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. Which statement is TRUE? The movement from point e to point a is due to workers and suppliers adjusting their expectations to lower price levels. The movement from point e to point a is due to decreased consumer spending brought about by increased government spending and/or lower taxes. The movement from point a to point b is due to increased consumer spending brought about by increased government spending and/or lower taxes. The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

Which of these provides an accurate description regarding the slope of the short-run aggregate supply curve? The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. The negative slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. The positive slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. The negative slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

A rise in real GDP is associated with increased employment. False True

True

If foreign countries abandoned the use of the dollar as their only form of legal currency, the U.S. money multiplier would likely increase. False True

True

If your goal was to have the largest amount of money in your bank account as possible in two years, which option would you choose? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years.) a beginning deposit of $950, earning 5% per year a beginning deposit of $930, earning 8% per year a beginning deposit of $1,010, earning 3% per year a beginning deposit of $1,000, earning 4% per year

a beginning deposit of $930, earning 8% per year

Which event would NOT be included in total factor productivity measurements? an earthquake that disrupts a country's production for several weeks a large investment in physical capital that makes labor more productive a severe military conflict that restricts daily movements of labor and capital an unexpected breakthrough in GPS technology that enhances transportation

a large investment in physical capital that makes labor more productive

Which of these is NOT a financial intermediary in the market for loanable funds? an insurance company mutual funds credit unions a school

a school

An economy is expected to produce higher profits for business owners at the same time that the country's stock market surges. What changes can be expected in the country's market for loanable funds? increases in both demand and supply a decrease in demand and an increase in supply decreases in both demand and supply an increase in demand and a decrease in supply

an increase in demand and a decrease in supply

The demand for loanable funds is downward sloping because... as interest rates fall, businesses find more projects to be profitable and thus want to borrow more. as interest rates fall, the value of the money supply drops. higher interest rates are equivalent to higher returns on business projects. higher interest rates encourage firms to borrow more.

as interest rates fall, the value of the money supply drops.

The U.S. economy is currently experiencing high unemployment and low inflation. To lessen the unemployment problem, the Federal Reserve could buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. raise the reserve requirement, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. lower the discount rate, thereby enabling banks to increase liquidity, lend more money, decrease the money supply, stimulate spending, and create jobs. sell bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

Which list represents monetary policy actions that are consistent with one another? sell government bonds, raise reserve requirements, lower the discount rate buy government bonds, raise reserve requirements, raise the discount rate buy government bonds, lower reserve requirements, lower the discount rate sell government bonds, lower reserve requirements, raise the discount rate

buy government bonds, lower reserve requirements, lower the discount rate

Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the _____ effect. opposite expansionary crowding-out ricochet boomerang

crowding-out

Which event will shift the aggregate demand curve to the right? decrease in military spending increase in household debt catastrophic hurricane hits the northeastern United States decrease in taxes

decrease in taxes

Move each of the labels to its corresponding transaction or transactions in the diagram. deposits loans savers banks borrowers withdrawals loan repayments interest payments on deposits

deposits loans savers banks borrowers withdrawals loan repayments interest payments on deposits

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction, the supply of money is directly increased by $4 million and has the potential to be increased by another $8 million. directly increased by $4 million and has the potential to be increased by another $12 million. not directly affected but has the potential to be increased by a total of $12 million. directly reduced by $4 million and has the potential to be reduced by another $12 million.

directly increased by $4 million and has the potential to be increased by another $12 million.

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing... disinflation. a drop in its price level. hyperinflation. deflation.

disinflation

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier. disposable income; larger aggregate spending; larger disposable income; smaller aggregate spending; smaller

disposable income; smaller

Assume taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to rise by $800. remain the same. by $800. fall by $600.

fall by $600.

If Kelly transfers $500 from her savings account to her checking account, M1 will increase and M2 will remain the same.

increase, remain the same

Which of these would likely cause the market for loanable funds to change as shown in the following figure? improved business expectations about future profits increased incentives for individuals to save a decrease in average incomes increased regulations placed on businesses

increased regulations placed on businesses

Unanticipated _____ is detrimental to economic growth. inflation or deflation inflation deflation Neither inflation nor deflation is detrimental to economic growth.

inflation or deflation

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. inflationary; decrease; $250 recessionary; increase; $100 recessionary; increase; $250 inflationary; decrease; $100

inflationary; decrease; $100

n September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the _____ lag. information recognition decision implementation

information

Cost-push inflation occurs because of a shift to the... right of the short-run aggregate supply curve. right of the aggregate demand curve. left of the short-run aggregate supply curve. left of the aggregate demand curve.

left of the short-run aggregate supply curve.

Assume the economy is currently experiencing aggregate expenditures greater than aggregate income. The economy will move toward equilibrium as businesses begin to produce _____, leading to _____ employment and _____ income. more; more; more more; less; less less; more; more less; less; less

more; more; more

A bond's price and yield are usually equal in value. move in the same direction. must sum up to 1,000. move in opposite directions.

move in opposite directions.

A breakthrough in solar energy research that halves the cost of electricity will have no effect on the aggregate supply curve. shift the aggregate supply curve to the left. cause the aggregate supply curve to become vertical. shift the aggregate supply curve to the right.

shift the aggregate supply curve to the right.

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. The movement from point a to point b is due to decreased consumer spending brought about by increased government spending and/or lower taxes. workers and suppliers adjusting their expectations to higher price levels. workers and suppliers adjusting their expectations to lower price levels. increased consumer spending brought about by increased government spending and/or lower taxes.

workers and suppliers adjusting their expectations to higher price levels.