Macro 16425 Exam 2

If the marginal propensity to consume is 0.8, full-employment output is $14 trillion, and current output is $13.5 trillion, then investment spending must _____ to reach full-employment output

increase by $0.1 trillion

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _____ in the _____ U.S.-made products

increase; aggregate demand for

A(n) _____ in productivity and a(n) _____ in taxes will shift short-run aggregate supply to the right.

increase; decrease

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in

increased inflation

Other things equal, if a recession gets worse, the number of discouraged workers _____, and the number of those in the labor force _____

increases; decreases

To have long-term economic growth, the production function suggests

increasing the availability of technology, capital, and labor

Which of the following items is NOT included in gross private domestic investment?

purchases of common stock

Assume that the MPC is 0.75. Full employment is considered to be at a GDP level of $500 billion. The GDP is $600 billion. What should the government do to achieve full employment

reduce spending by $25 billion

Which of the following is a source of increases in productivity

research and development capital investment improvements in labor quality

Firms decide how much to invest by comparing the rate of return on their projects with

the interest rate

The collapse of home values in 2008 led to _____ in Americans' consumption and _____ in their saving rates

a decrease; an increase

In macroeconomics, the long run is

a period long enough that participants in the economy will have enough time to gain all relevant information and enough time to act correctly on that information

The output of all the goods and services demanded in an economy at various price levels is called

aggregate demand

During the 1970s, some countries stopped oil sales to the United States. As petroleum prices rose

aggregate supply fell and the aggregate price level rose

According to the circular flow model, the value of the household sector and the value of the business sector will:

always be equal.

According to the textbook, what brought the United States out of the Great Depression

an increase in spending on World War II

Between 1990 and 2010, the number of people in the world living in poverty has

been cut in half

Investment is defined as spending by

business that adds to the productive capacity of the economy

Which are the determinants of short-run aggregate supply

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

In 2012, the group with the lowest unemployment rate in the United States was

college graduates

Everything else the same, if investment expenditures rise by $300 billion and imports increase by $300 billion, then GDP

does not change

In a simple circular flow diagram, total spending on goods and services in the product market:

equals the total income earned in the resource market.

Which of the following groups benefit from an unanticipated rise in the inflation rate

homeowners with fixed-rate mortgages

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is:

$0.1 trillion

What is real GDP in 2014 dollars if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100

$13,636 billion

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals:

$140

If your income is $35,000 and the average propensity to save is 0.46, what is consumption

$18,900

Last year, Marian earned $25,000, paid $2,000 in taxes, and saved $5,000. Marian's personal income was _____, her disposable personal income was _____, and her consumption spending was _____

$25,000; $23,000; $18,000

All of the following are determinants of aggregate supply EXCEPT

Net Exports

Investment spending

Tends to be tangible

The Potbelly Pothole Company is undertaking some investments in its plant. Suppose interest rates fall and new technologies increase the return on its investment. What is likely to happen?

The company's demand for investments will rise

When the economy is operating at the natural rate of unemployment

When cyclical rate is zero

Which is true about differences in savings rates across groups of people

Younger people and lower-income people tend to save less

According to the table net exports of goods and services are equal to: Exports- 1746.1 Imports- 2251.5

-505.4

If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is:

0.25

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $40 billion. These economists would estimate that the marginal propensity to save is

0.25

If disposable income is $250 and saving is $50, how much is the average propensity to consume

0.8

The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is Income 0,500,1000,1500,2000,2500 Consumption 250,700,1150,1600,2050,2500

0.9

If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent

1,000

There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force

10 Million People

Spending by federal, state, and local governments has grown from _____ of GDP in the 1930s to more than _____ today

10%; 30%

According to the table, the number of people in the labor force is Employed- 85 Unemployed Seeking work-25 Discouraged workers-15 Unpaid Family members working 15-plus hours-10 Retired-5

115

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is

125

Suppose the Bureau of Labor Statistics collects the data presented in the following table: 2010- $200 2011- $230 2012- $250 If 2010 is the base year, then the consumer price index for 2012 is

125

According to the information, the GDP for 2010 was: PC- 10,353.5 Gross Private domestic investment- 1769.1 Exports- 1746.1 Imports- 2251.5 Government Purchases- 2975.1 Capital- 1030.2

14,592.3

If an economy's GDP will double in 25 years, then its growth rate must be about

2.8%

Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is

3%

If the marginal propensity to save is 0.2, the value of the spending multiplier will be

5

If output equals A × (5K + 2L), what is output if A equals 2,000, capital equals 10, and labor equals 100

500,000

Approximately what share of U.S. GDP is consumption

70%

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9. Which of the following statements is correct

A small increase in spending will have a more powerful effect in starting a recovery in the United States than in Japan

Which of the following is true within the circular flow of economic activity?

Business firms are sellers of products and buyers of production factors

The Leading Economic Index fell in July and August, rose in September, and fell again in October. Based on this, we should expect a recession in the near future

False

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of the following is true

Jennifer is losing purchasing power by 2%

If autonomous investment spending falls by $1,000 and the marginal propensity to consume is 0.75, the total effect on the economy is a decrease of _____ in income or output

$4,000

Jill has an escalator clause in her labor contract that gives her a raise equal to the change in the consumer price index (CPI). Last year she earned $40,000 and the CPI was 100. If the CPI this year is 110, her new salary is

$44,000

Last year, Megan's salary was $65,000 while the consumer price index increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be

$68,578

The largest component of GDP is

Consumption

Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a local elementary school. She began looking for a full-time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is?

Employed

Suppose the National Bureau of Economic Research announces that the economy has been in a recession for the past year. What effect might this announcement have on the economy?

Employers will trim payrolls in an effort to cut costs in the face of decreased demand for their products.

Suppose an economy has historically grown at a rate of 2.25%. The economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

Expansion

A tax decrease on producers will shift the aggregate supply curve to the left

False

Cathy works part-time as a bookkeeper but would like to have a full-time position. She has been actively searching for months but so far has not found a job. According to the Bureau of Labor Statistics, Cathy is unemployed

False

In the United States, people are not counted as employed if they have a job but are on maternity or paternity leave

False

Small differences in growth rates do not lead to large overall differences in income over time

False

Whispering Valley Furniture hires five employees working eight hours each to produce 80 rocking chairs. Rocky Gap Furniture hires ten employees working eight hours each to produce 160 rocking chairs. Which company's workers are more productive

The two companies' workers are equally productive

An economy has 100,000 residents. There are 46,000 people with full-time jobs, 14,000 with part-time jobs, and 4,000 unemployed people who are actively looking for work. The unemployment rate for this economy is 6%

True

Economic growth typically results in longer life expectancies

True

John Maynard Keynes devised the framework for developing policies to avoid future severe macroeconomic downturns

True

The paradox of thrift is that if everyone tries to save more, in total, they might save less

True

To sustain growth beyond the small fluctuations common in the business cycle, an economy's ability to produce must increase

True

Johnny is 17 and works in his father's bubble gum store 10 hours a week after school. His father pays him no money but buys video games for him. However, Johnny earns a spot on the high school football team and no longer works in his father's store. How is Johnny categorized in the unemployment figures?

Unemployed

One way a stable financial system supports economic growth is that it

facilitates the movement of capital from savings to investment

Gross domestic product is the total market value of all:

final goods and services produced in the United States by labor and property

Which of the following items is NOT a determinant of aggregate demand

government saving

When the National Activity Index is at zero, the economy is growing at _____ rates. Negative values imply _____ trends. Positive values imply that growth is _____ the long-term trend.

historical; slowing; faster than

One important reason economists track business investment is that:

it is a leading indicator of the business cycle

In the absence of copyright and patent laws

it is difficult for innovators to profit from their efforts

Generally, nations with the _____ economic freedom also have the _____ per capita GDP

least; lowest

A shift to the _____ of the _____ curve would cause the price level and employment to decrease

left; aggregate demand

If the amount of regulation in an economy increases, the aggregate supply curve shifts _____ and output supplied will _____

left; decrease

Increased taxes will shift the aggregate demand curve to the _____ and _____ output demanded

left; decrease

A legal system that enforces property rights is important to economic growth because

legal protection of ideas and technologies gives people who innovate the ability to protect their work

If a country has a low capital-to-labor ratio, then it tends to have

low labor productivity and low wages

Physical capital includes

manufactured products that are used to produce other goods and services

Which of the following technologies most strongly affected the growth in U.S. productivity in recent decades

microcomputers

Jordan Meadows lost his job as an airline pilot and has not been able to find another job as a pilot. Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents. According to the Bureau of Labor Statistics, Jordan is

not in the labor force

An example of intangible infrastructure is

patent laws

Holding other expenditures constant, if imports fall by $20 billion and exports fall by $10 billion, then GDP

rises by $10 billion

Human capital refers to:

skills, knowledge, and quality of workers

The classical form of the production function states that output is determined by

some function of available labor or capital

Which of the following two things can people do with money received as disposable personal income

spend money or put it into savings

Zach has been laid off from his job as an aircraft worker . He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is

unemployed

Land and natural resources include

water and minerals that come from the earth