MACRO ECON QUIZ

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises?

Both the equilibrium price and quantity would increase.

Which of the following phrases is sound advice based on the efficient markets hypothesis?

Buy broadly and hold

Which of the following statements is correct? A. In the short run, unemployment and inflation are positively related. In the long run they are largely unrelated problems. B. Inflation and unemployment are positively related in the short run and in the long run. C. In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems. D. Inflation and unemployment are negatively related in the short run and in the long run.

C. In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.

The long-run aggregate supply curve shifts right if A. immigration from abroad increases. B. the capital stock increases. C. technology advances. D. All of the other answers are correct.

D. All of the other answers are correct.

According to the Phillips curve, policymakers could reduce both inflation and unemployment by A. increasing the money supply. B. increasing government expenditures. C. raising taxes. D. None of the above is correct.

D. None of the above is correct.

Which of the following would lead to a shift in the aggregate demand to the left? A. an increase in physical or human capital. B. a decrease in the availability of natural resources. C. an advance in technological knowledge. D. none of the other choices is correct.

D. none of the other choices is correct.

Which of the following demonstrates the law of demand?

Dave buys more donuts at 0.25𝑝𝑒𝑟𝑑𝑜𝑛𝑢𝑡𝑡ℎ𝑎𝑛𝑎𝑡0.25perdonutthanat0.50 per donut, other things equal.

Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?

Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

Harry buys a bond issued by Apple, which uses the funds to buy new machinery for one of its factories. In macroeconomics we say,

Harry is saving, Apple is investing

A professor of physics gets a \$200 a month raise. She figures that with her new monthly salary she can buy the same number of goods and services she bought last year.

Her real salary has stayed constant and her nominal salary has risen.

If the natural rate of unemployment rose how would this affect the long-run Phillips curve?

It would shift the long-run Phillips curve right.

Which of the following is correct? A. Nominal and real interest rates always move together. B. Nominal and real interest rates never move together. C. Nominal and real interest rates do not always move together. D. Nominal and real interest rates always move in opposite directions.

Nominal and real interest rates do not always move together.

If the price level decreases,

People need less money so deposits increase at banks which reduce interest rates so investment increases.

Esmerelda worked ten hours part-time for her mother's business without pay. Tabitha was absent from work because she was sick. Who is counted as "employed" by the Bureau of Labor Statistics?

Tabitha but not Esmerelda

Which of the following statements is correct? A. The CPI can be used to compare dollar figures from different points in time. B. The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate. C. Compared to the consumer price index (CPI), the GDP deflator is the more common measure of inflation. D. The GDP deflator better reflects the goods and services bought by consumers than does the CPI.

The CPI can be used to compare dollar figures from different points in time.

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal benefit of going to Spain increases.

Some poor countries appear to be falling behind rather than catching up to rich countries in terms of income per capita. Which of the following could explain the failure of a poor county to catch up?

The poor country has poorly developed property rights.

If national saving is 100 + 100r and investment is 300 - 100r then an equilibrium in the loanable funds market implies,

The real interest rate is 1% and investment is 200

Suppose the MPC is 0.8 and there is no crowding out effect. What would be the effect of a \$400 tax cut versus a \$400 increase in government spending on aggregate demand?

The spending increase would shift AD \$400 more to the right than the tax cut.

If a U.S. citizen living in the U.S. buys a dress made in Nepal by a Nepalese firm, then

U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected.

You own a zero-coupon bond that matures one year from today. It has a face value of \$1000 and its current price is \$800. At which of the following alternative interest rates would you sell this bond?

You would not sell this bond at any of the other interest rates

According to the Gordon Growth Model of stock prices if dividends are constant at \$1, the risk-adjusted discount rate is 7% and the expected growth rate of the firm's dividends is 6% then the price of the stock is

\$100 a share

Suppose that your alternative interest rate is 6%. Which has the higher present value to you - a payment of \$100 today or a payment of \$112 two years from today?

\$100 today

If the reserve ratio is 5 percent, then, other things equal, \$600 of additional reserves can create as much as

\$12,000 of new money.

David earned a salary of \$43,500 in 1994 and \$89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is

\$63,195.34

The New York Cranberry Company sold \$10 million worth of cranberries it produced. In producing cranberries, it purchased \$1 million dollars of supplies from foreign countries and paid workers who live in Canada but commute to work in the U.S. \$2 million. How much did these transactions add to U.S. GDP?

\$9 million

The idea that nominal variables are affected by the quantity of money and that money is largely not important for understanding the determinants of real variables is called the

classical dichotomy.

If demand is given by Q = 180 - 2P and supply is given by Qs = -20 + 3P where P = Price and is measured in dollars and Q = Quantity and is measured in units then

consumers will pay no more than \$80 for the 20th unit of the good

Which of the following events must cause equilibrium quantity to fall?

demand and supply both decrease

On a bank's T-account, which of the following are part of the bank's liabilities?

deposits made by its customers but not reserves

If the Federal Reserve increases the growth rate of the money supply, then unemployment is lower

in the short run but not the long run.

Assume that Congress tries to balance the budget by cutting government spending. As a result, the aggregate demand (and output) decline. To stabilize the economy, and keep real GDP close to the natural rate, the Fed should:

increase the money supply to reduce interest rates and increase aggregate demand

If the Fed conducts open-market purchase of bonds, which of the following decrease?

interest rates, but not investment or prices

Which component of real GDP fluctuates the most over the course of the business cycle?

investment

The misperceptions theory of the short-run aggregate supply curve says that the supply of output increases if the price level

is higher than expected so that firms believe the relative price of their output has increased.

Open-market purchases by the Fed

make the price level rise, and make the value of money fall

Credit card limits are included in

neither M1 nor M2

We would expect that, the more generous unemployment compensation a country has,

on average people would spend more time unemployed, and the unemployment rate would be higher.

Suppose the economy is in long-run equilibrium. If the government increases its spending, eventually the increase in aggregate demand causes price expectations to

rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

If a person sold some of the stock in their portfolio and used the proceeds to buy US government bonds, then we would expect

risk and return would fall

A higher interest rate induces people to Answer:

save more, so the supply of loanable funds slopes upward

The money supply decreases if the Fed

sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.

Suppose roses are currently selling for \$40 per dozen, but the equilibrium price of roses is \$30 per dozen. We would expect a

surplus to exist and the market price of roses to decrease.

rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

the Fed decreases the money supply

The time to maturity of a bond is called,

the Term

You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include

the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.

If total spending rises from one year to the next, then which of the following could not be true?

the economy is producing a smaller output of goods and services, and goods and services are selling at lower prices.

Microeconomics focuses on all of the following EXCEPT

the effect of increasing the money supply on inflation.

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

the enjoyment she would have received had she gone to the park.

Which of the following is not associated with an adverse supply shock?

the short-run Phillips curve shifts left

Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

three percent and prices fell one percent.

Which of the following does not help reduce frictional unemployment?

unemployment insurance paid to workers who lose their jobs

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

unemployment is higher and inflation is lower.

Suppose GDP is equal to 15,000, net taxes are equal to 4,000, consumption equals 10,000, and government expenditures equal 3,000. What are private saving and government saving?

1,000 and 1,000

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was \$50; in 2014, the basket's cost was \$51; and in 2016, the basket's cost was \$52. The value of the CPI in 2014 was

102.0.

If real GDP is 4,900 and nominal GDP is 5,100, then the GDP deflator is

104.1 so prices are higher than in the base year.

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of \$150. If customers deposit \$50 into the bank, what is the value of the money supply?

\$150

Suppose a one-year zero-coupon bond has a face value of \$3000. If your alternative return is 3% the most you will pay for this bond (rounded to the nearest dollar) is

\$2913

Which of the following would shift the demand curve for gasoline to the right?

an increase in consumer income, assuming gasoline is a normal good

Which of the following policies would be advocated by proponents who want to return output to the natural rate when the economy is experiencing severe unemployment?

an increase in government purchases

The long- run aggregate supply curve is vertical. Which of the following would raise the quantity of output in the long run?

an increase in the capital stock, but not an increase in the price level.

When the Fed conducts an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply.

Other things equal, if government spending increases

consumption and investment falls

The president of a poor country has announced the following measures to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in domestic industries by foreigners because they take profits out of the country; 4. Encourage trade with neighboring countries; and 5. Increase the fraction of GDP devoted to consumption. How many of these measures will have a positive effect on growth?

2

Suppose that the real interest rate is 4%, the inflation rate is 2%, and the tax rate is 25%. What is the after-tax real interest rate?

2.5%

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

3 percen

Suppose that the marginal propensity to consume is 3/4. What is the multiplier?

4

If the finding rate is 80% and the separation rate is 4% then the labor flow model of unemployment says the unemployment rate isIf the finding rate is 80% and the separation rate is 4% then the labor flow model of unemployment says the unemployment rate is

4.8%

According to diminishing marginal returns to physical inputs in the production function, which of the following values of the additions to output per worker would be consistent with moving from 5 to 6, then from 6 to 7, and then from 7 to 8 units of capital per worker in that order?

40, 34, 32

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2.5 percentage points for one year, the sacrifice ratio is

5

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

5 percent.

Based on the Quantity Theory of Money, if P = 2, Y = 600, and M = 200, then V =

6

Suppose that in some state the adult population is 4 million, the labor force participation rate is 75%, and 250,000 people are unemployed. What is the unemployment rate in that state?

8.3%

[A typographical error appears on this question. All students will receive credit for their answer] Recall that fiscal policy involves a multiplier effect and a crowding out effect. An increase in government expenditures changes aggregate demand more, If a \$1,000 increase in income leads to an \$800 increase in consumption expenditures, then the marginal propensity to consume is

A. the smaller the MPC and the stronger the influence of income on money demand. B. the smaller the MPC and the weaker the influence of income on money demand. C. 0.8 and the multiplier is 8. D. 0.2 and the multiplier is 1.25. E. 0.8 and the multiplier is 5. F. the larger the MPC and the weaker the influence of income on money demand. G. the larger the MPC and the stronger the influence of income on money demand. H. 0.2 and the multiplier is 1.25.

As opposed to barter, an economic system based on money

does not require a double coincidence of wants, makes trades less costly, leads to more specialization.

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

fails to account for the introduction of new goods.

If there are constant returns to scale, the number of workers in an economy doubles and all other inputs stayed the same, then productivity would

fall, but it would still be greater than one-half of its former value.

If the number of dollars needed to buy a representative basket of goods falls, the price level

falls, so the value of money rises.

Which of the following shifts aggregate demand to the right? A. an investment tax credit is repealed B. the price level decreases C. stock market wealth falls. D. government purchases increase

government purchases increase

A bank has a 10 percent reserve ratio, \$36,000 in loans, and has loaned out all it can given its reserve ratio. This bank

has \$40,000 in deposits.

The money supply decreases if

households decide to hold more currency and fewer deposits and banks decide to hold more excess reserves and make fewer loans.

Shanti is studying to be a chemist. What she learns about existing chemistry increases

human capital but not technological knowledge.

For an economy as a whole,

income must equal total spending or aggregate expenditure.

If demand is given by Q = 180 - 2P and supply is given by Qs = -20 + 8P where P = Price and is measured in dollars and Q = Quantity and is measured in units then in equilibrium

price is \$20 and quantity is 140

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action

raises inflation but lowers unemployment.

In 2009 Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

reduced unemployment and raised inflation.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,

relative to prices wages are higher and employment falls.

An economic expansion caused by a shift in aggregate demand beyond the natural rate of output, YN, causes prices to

rise in the short run, and rise even more in the long run.

According to the theory of liquidity preference, an increase in the price level causes the interest rate to

rise. So the aggregate quantity of goods and services demanded falls.

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

the interest rate to fall, so aggregate demand shifts right.

In 2009, towards the end of the Great Recession, some people became discouraged and quit looking for work. Other things equal, when they quit looking for work, then according to the BLS

the labor force and the unemployment rate would both fall.

A rational decision maker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost.

As long as prices are rising over time, then

the nominal interest rate exceeds the real interest rate.

Money demand depends on

the price level and the interest rate