Macro Economics Final
Which of the following statements about a cost-push inflation is CORRECT?
Cost-push inflation might start with a rise in the price of raw materials, but it requires increases in the quantity of money to persist.
1, 100, 2, 117, A 3, 125, B 4, 120, C 5, D, 8.3 6, 150, E In the table above, what inflation rate belongs in space A?
17.0 percent
If investment increases by $300 and, in response, equilibrium aggregate expenditure increases by $600, then the multiplier must be
2.
Suppose the current unemployment rate is 5 percent, the labor force is 400 million people, the labor force participation rate is 80 percent and the working-age population is 500 million people. What number of people are unemployed?
20 million people
The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal interest rate is approximately ________ percent a year; and when the inflation rate is 2 percent a year, the nominal interest rate is approximately ________ percent a year.
4; 6
In an economy, 42 million people are in the labor force, 38 million are employed, and 47 million are of working age. How many people are not in the labor force?
5 million
Suppose that the equilibrium real interest rate is 2 percent per year, inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule, what is the federal funds rate?
5.25 percent
Total population = 246 Working-age population = 207 Labor force = 139 Employed = 133 Unemployed = 6
67.1 percent
The Board of Governors is the
7-member group that oversees the Federal Reserve.
Slowdonia's current growth rate of real GDP per person is 1 percent a year. Approximately how long will it take to double real GDP per person?
70 years
In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic growth rate from 2011 to 2012?
9.0 percent
Person A: Now that the kids are in school for a full day, this person is looking for work and has interviewed for three jobs during the past two weeks. Person B: This person has been laid off from a job but expects to be called back as soon as the economy improves. Person C: This person has just graduated from college and will start a new job in three weeks. In the meantime this person will tour the great American beaches. Person D: This person was laid off last year when new equipment was installed at the plant, reducing the number of workers needed. Shortly after being laid off, this person looked for a new job, was unable to find one and then stopped looking, even though this person still wants a job and is available for work. The above table shows answers given by people interviewed in a government survey of households. Which individuals are considered to be a part of the labor force?
A, B, and C
In an AS/AD figure, lowering the federal funds rate initially shifts the
AD curve rightward.
Which of the following creates a demand for U.S. dollars?
Toyota, a Japanese firm, purchasing land in Texas
In 2008, the dollar appreciated relative to the euro. This appreciation caused ________ and a ________.
a decrease in U.S. exports to Europe; leftward shift in the U.S. aggregate demand curve
Deflation can start with
a decrease in aggregate demand.
The New York Times reported in November 2008 that 240,000 additional people lost their jobs which increased the unemployment rate to 6.5 percent. In addition, it was noted that a large number of college graduates were "taking jobs that do not require a college degree." It was also expected that "teens will be thrown out of the labor market....causing youths to miss experience" that could help them prepare for higher-skilled jobs. The article reflects the idea that unemployment is a problem because it results in
a loss of human capital
An increase in labor hours will lead to
a movement along the aggregate production function but no shift in it.
According to the Laffer Curve, when tax rates are low, there is ________relationship between them and tax revenue.
a positive
The U.S. personal savings rate for the first quarter of 2012 dropped to its lowest level since the start of the recession. Americans stashed away 3.6 percent of personal income in the first quarter, down from 4.2 percent in the fourth quarter and a near-term peak of 6.2 percent in the second quarter of 2009. Which of the following could explain this drop in savings?
a rise in consumer confidence that their incomes will be higher in the future
By using open market operations, the Federal Reserve
adjusts the supply of reserves to keep the federal funds interest rate equal to its target.
Demand-pull inflation occurs when
aggregate demand increases persistently.
"UK Inflation Surges to 16-year High"According to the story, "High inflation in July will also lead to ... "further rises next January ..." Economists also noted that inflation may get worse because the current data did not yet include "announced rises in gas and electricity prices."www.ft.com, 8/12/2008 The story reflects the concept of
cost-push inflation
Which of the following exchange rate policies uses a target exchange rate, but allows the target to change?
crawling peg
The monetary base is
currency and reserves of depository institutions.
An increase in the price level decreases planned expenditures because
current prices rise relative to future prices, decreasing expenditure.
If a worker is temporarily laid off because the economy is in a recession
cyclical unemployment increases.
An income tax ________ potential GDP by shifting the ________ curve ________.
decreases; labor supply; leftward
A decrease in the government budget deficit decreases the ________ loanable funds and an increase in the government budget surplus increases the ________ loanable funds.
demand for; supply of
The AD curve slopes
downward due to the wealth and substitution effects.
The marginal propensity to import is the ________ that is spent on imports.
fraction of an increase in real GDP
The system that measures the lifetime tax burden and benefits of each generation is called
generational accounting.
Because of automatic fiscal policy, when real GDP decreases
government expenditures increase and tax revenues decrease
When real GDP is ________ potential GDP, the unemployment rate is ________ the natural unemployment rate.
greater than; less than
In order for the United States to repay its international debt, the United States would need to
have a surplus of exports over imports.
The short-run Phillips curve shows the relationship between
inflation and unemployment when expected inflation does not change.
Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change? The
inflation rate.
In 2012, U.S. core inflation was 2.1 percent. This inflation rate
is about equal to the inflation rate that the Fed accepts as creating stable prices.
The structural surplus
is the government budget surplus that would exist if the economy was at potential GDP.
The quantity of real GDP demanded equals $18.2 trillion when the price level is 90. If the price level rises to 95, the quantity of real GDP demanded equals
less than $18.2 trillion
During the financial crisis of 2008-2009, the Fed's actions to supply reserves to the banking system was an attempt to
make certain that banks had enough liquidity to avoid collapse.
The term "crowding out" relates to the decrease in
private investment from a government budget deficit
In the short-run macroeconomic equilibrium
real GDP and the price level are determined by short-run aggregate supply and aggregate demand.
The structural deficit is the deficit that occurs when
real GDP equals potential GDP.
The relationship between real GDP and potential GDP is that
real GDP fluctuates about potential GDP.
In the post-World War II period, considerable growth in total production took place in the United States. But at the same time, businesses were dumping their waste into the Great Lakes with minimal cost to themselves, significantly polluting the bodies of water as a result. This occurrence is an example where
real GDP gives an overly positive view of economic welfare.
Taking into account the upward-sloping short-run aggregate supply curve, the short-run effect of an increase in government expenditure on real GDP is that
real GDP increases by more in the short run than in the long run.
Which of the following is used to calculate the standard of living?
real GDP/population
Which of the following theories is criticized for assuming the money wage rate is not sticky?
real business cycle theory
Suppose that in response to a decrease in real interest rates, a person decides to reduce his labor supply today and increase it in the future. This behavior is most consistent with the
real business cycle theory.
People base their labor supply on the ________ because they care about ________.
real wage; what their earnings will buy
As the ________ interest rate increases, the quantity of loanable funds demanded ________.
real; decreases
Examples of thrift institutions include
savings and loan associations, savings banks, and credit unions.
If Samantha predicts future inflation based on rational expectations, then
she uses all relevant information to forecast inflation.
A decrease in autonomous consumption will
shift the aggregate expenditure function downward.
If the multiplier is 4.0 and investment decreases by $2.5 billion, the AD curve
shifts leftward by $10 billion
The larger the multiplier, the ________ the AE curve and the ________ the AD curve from an increase in investment.
steeper; larger the shift in
In 2012 the Fed announced that it would purchase $40 billion of mortgage securities per month. These purchases shifted the ________ reserves curve ________.
supply of; rightward
If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is ________.
surplus; positive
Substitution bias in the CPI refers to the fact that the CPI
takes no account of the substitution of goods by consumers when relative prices change.
The difference between the before-tax and after-tax rates is referred to as the
tax wedge
The discount rate is the interest rate
that the Fed charges on its last resort loans.
Control of the nation's quantity of money is handled by
the Federal Reserve System.
When the United States imports goods and services from the rest of the world
the U.S. makes payments to the rest of the world.
An example of a macroprudential regulation is
the Volcker Rule that restricts the amount banks may invest in hedge funds.
The money multiplier is
the amount by which a change in the monetary base is multiplied to determine the change in the quantity of money.
If the European Central Bank increases European interest rates
the demand curve for European euros shifts rightward and the supply curve of European euros shifts leftward.
An above-full-employment equilibrium occurs when
the equilibrium level of real GDP is greater than potential GDP.
If this year's price level exceeds last year's
the inflation rate between these years has been positive
GDP can be computed as the sum of
the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time.
When the Fed raises the federal funds rate
the value of the dollar rises on the foreign exchange market.
If the Fed responds to an increase in aggregate demand by increasing the quantity of money
there will be continued inflation.
Expenditures such as Social Security benefits, farm subsidies and grants are considered
transfer payments
In September 2014, the labor force participation rate fell from 62.8 percent to 62.7 percent. This change could have been caused by
unemployed workers giving up looking for a job.
An advance in technology increases the productivity of labor. As a result, the nation's production function shifts ________ and the ________ labor curve shifts rightward.
upward; demand for
The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services.
urban consumers
If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent
you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan.
Investor A 120 Investor B 100 Investor C 85 Using the table above, if the current market value of the dollar is 125 francs
all three investors hold francs.
Suppose the country of Dingo experienced an economic trough in January 2017. We can conclude that
an expansion occurred after January 2017.
An increase in U.S. exports prompted by a rise in foreign incomes represents ________ in the United States.
an increase in autonomous expenditure
Which of the following shifts the aggregate demand curve rightward?
an increase in government expenditure
Saving and investment that increase a nation's capital lead to
an increase in labor productivity.
According to the BEA, in the second quarter of 2012 nominal GDP rose by 3.3 percent and real GDP rose by 1.7 percent. The difference between the change in nominal GDP and the change in real GDP could be explained by
an increase in prices of final goods and services produced.
Cost-push inflation can be started by
an increase in the money prices of raw materials.
The labor force is defined as the number of people who
are employed plus the number of people who are unemployed
If the government sector is running a deficit of $120 million and the private sector is running a surplus of $200 million, then net exports equal
$80 million surplus
If the CPI was 122.3 at the end of last year and 124.5 at the end of this year, the inflation rate over these two years was
1.8 percent.
Full employment exists when
All of the above answers are correct
In the macroeconomic long run
All of the above are correct.
Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?
All of the above are true.
Of the following Asian countries, which has the lowest level of real GDP per person?
China
Which of the following statements regarding human capital is INCORRECT?
Education is the only vehicle for the creation of human capital because training simply reinforces what has already been learned.
The factor that leads to business cycle events within real business cycle theory is represented by
The factor that leads to business cycle events within real business cycle theory is represented by
The price level falls if
The price level falls if
If the aggregate demand curve shifts rightward following a decrease in the federal funds rate, what can be concluded if the short-run aggregate supply curve is rather steep?
There will be little increase in real GDP but a significant increase in the price level.
Using the notation Pt to designate this period's price level and Pt-1to designate last period's price level, the formula for measuring the inflation rate from last period to this period is
[(Pt - Pt - 1) / Pt - 1] × 100
The best definition for economic growth is
a sustained expansion of production possibilities measured as the increase in real GDP over a given period.
When real GDP exceeds potential GDP, then the economy has
an inflationary gap
When the output gap is positive, it represents ________ gap, and when it is negative, it represents ________ gap.
an inflationary; a recessionary
Expenditure that does NOT depend on real GDP is called
autonomous expenditure
Suppose Mitsubishi Bank (a Japanese bank) expects the exchange rate to be 125 yen per U.S. dollar at the end of the year. If today's exchange rate is 120 yen per U.S. dollar, Mitsubishi bank
buys U.S. dollars today because it expects profit from buying U.S. dollars and holding them.
If the Fed sells U.S. dollars, the exchange rate
falls
Long-term interest rates are ________ than short-term interest rates because long-term loans are ________ than short-term loans.
higher; riskier
Economic growth
is an increase in potential GDP as the long-run aggregate supply curve shifts rightward.
The required reserve ratio
is the fraction of a bank's total deposits that is required to be held in reserves.
1 - MPC equals
marginal propensity to save
Gross domestic product is the total ________ produced within a country in a given time period.
market value of all final goods and services
Gross domestic product
measures the value of the aggregate production of goods and services in a country during a given time period.
In the short-run, real GDP can be greater than or less than potential GDP because in the short run the
money wage rate is fixed
An increase in the nominal interest rate creates a ________ the money demand curve, and an increase in real GDP creates a ________ the money demand curve.
movement up along; rightward shift of
Which of the following statements are CORRECT? I.The average economic growth rate in real GDP per person in the United States over the last century was 5 percent per year. II.The United States has the highest economic growth rate of any nation.
neither I or II
Suppose that forecasters have incorrectly estimated aggregate demand. According to the ________, this mistake could trigger a business cycle.
new classical cycle model
Frictional unemployment is the result of
normal labor market turnover
Credit cards are
not part of money because they represent a loan of money to the user.
One reason that the aggregate demand curve has a negative slope is because
people buy fewer goods and save more when the price level rises because their real wealth decreases.
Factors that influence labor productivity include
physical capital, human capital, and technology
An inflation rate targeting rule
reduces uncertainty about monetary policy.
An increase in disposable income shifts the supply of loanable funds curve
rightward and decreases the real interest rate.
An individual holds $10,000 in a checking account and the price level rises significantly. Hence
the individual's real wealth and consumption expenditure decrease.
1,240,240 2,250,245 3,260,255 4,300,320 5,325,340 What is the amount of the surplus or deficit incurred in year 1 by the government shown in the above table?
$0
During 2017, the country of Economia had a real GDP of $115 billion and the population was 0.9 billion. In 2016, real GDP was 105 billion and the population was 0.85 billion. In 2016, real GDP per person was
$124.
Personal consumption expenditure = 80 Government expenditure on goods and services = 30 Net taxes = 35 Gross private domestic investment = 20 Imports of goods and services = 10 Exports of goods and services = 20 Use the information in the table above to calculate the value of national saving.
$25 million
100, 75, 25, 95, 10, 1 200, 150, 25, 95, 10, 2 300, 225, 25, 95, 10, 3 400, 300, 25, 95, 10, 4 500, 375, 25, 95, 10, 5 600, 450, 25, 95, 10, 6 700, 525, 25, 95, 10, 7 800, 600, 25, 95, 10, 8 900, 675, 25, 95, 10, 9 1000, 750, 25, 95, 10, 10 In the above table, C is consumption expenditure, I is investment, Gis government expenditure, X is exports, and M is imports. All entries are in dollars. What is the equilibrium expenditure?
$500
Suppose X - M = net exports; T - G = government sector balance; and S - I = private sector balance. What relationship exists among these variables?
(X - M ) = (T - G ) + (S - I )
Exports = 234 Imports = 277 Government expenditure = 887 Net taxes = 855 Investment = 760 Saving = 749 The above table gives data for the nation of Sueland. What is the value of net exports?
-$43 billion
Personal consumption expenditure = 1,500 Gross private domestic investment = 355 Government expenditure on goods and services= 590 Exports of goods and services = 70 Imports of goods and services = 50 Depreciation = 200 Indirect business taxes= 75 Based on the data in the above table, gross domestic product equals
2,465
The Taylor Rule states that the
Fed should adjust the federal funds rate to take account of the deviations of the inflation rate from its target and real GDP from potential GDP.
In 2008, Germany passed a stimulus package of $29 billion as its economy slowed. This policy action follows the ________ to restore full employment.
Keynesian viewpoint that supports increases in federal government expenditure
Which of the following best describes the chain of events in the money creation process?
The monetary base increases. Banks acquire unplanned reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional unplanned reserves.
In 2013 the government increased Social Security income taxes by 2 percentage points and increased the income tax rate on Americans making more than $400,000 by 4.6 percentage points. These tax hikes
decreased the size of the multiplier.
Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. Over this time period, the real GDP growth rate is
decreasing.
When talking about aggregate supply, it is necessary to
distinguish between long-run aggregate supply and short-run aggregate supply.
A decrease in the expected inflation rate shifts the short-run Phillips curve
downward and creates a movement downward along the long-run Phillips curve.
"As the credit crisis unfolded over the past year, one of the few certainties in the global economy seemed to be China's ability to plough on regardless of double-digit growth rates...The ...crisis has also focused ...on the need to update a growth model that...is still dependent on assembling goods for export without adding much value and on heavy industries that create pollution. Chinese companies have continued to find new foreign markets for their products...several other factors point to a slowing property market...production of steel, cement and air conditioners was down... Retail sales have risen by 23 per cent in each of the last two months".Beijing's Burden, www.FT.com, by Geoff Dyer, Sept. 23, 2008 According to the article, ________ are expected to contribute ________ to China's real GDP in 2008.
exports and consumption; positively
Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond
falls from 10 percent to 8 percent.
If the Fed carries out an open market operation to buy U.S. government securities, if the federal funds rate stays in the corridor the federal funds rate ________ and the quantity of reserves ________.
falls; increases
Comparing the fiscal imbalance for the current generation versus future generations, it is the case that
future generations pay a larger share of the fiscal imbalance.
During an expansion, tax revenues ________ and government transfer payments ________.
increase; decrease
An increase in the U.S. demand for imports will ________ the supply of dollars and lead the dollar to ________.
increase; depreciate
An increase in exports of goods or services with no change in imports of goods or services
increases GDP
Technological change
increases potential GDP.
Saving by households
increases when the real interest rate rises
A recessionary gap means that the level of real GDP at the short-run macroeconomic equilibrium
is less than full-employment GDP.
If the real interest rate is above the equilibrium real interest rate
lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall.
In the equation, GDP = C + I + G + X - M, G refers to
local, state, and federal government expenditure on goods and services, but does not include transfer payments.
The Fed buys U.S. government securities from banks in order to
lower the federal funds rate.
A decrease in the federal funds rate
lowers the exchange rate, increases the supply of loanable funds, and increases aggregate demand.
In the very short run, the components of aggregate planned expenditure that depend on the level of real GDP are
planned consumption expenditure and planned imports.
During a deflation, the price level is
positive and falling.
A country's balance of payments accounts records
the international trading, borrowing, and lending positions of a country over a period of time.
The Cleveland Federal Reserve Bank estimates the expected inflation rate is 1.5 percent in 2013. This estimate means that
the long-run and short-run Phillips curve cross at an inflation rate of 1.5 percent.
The opportunity cost of holding money increases when
the nominal interest rate rises
When the inflation rate is negative, the
the real interest rate is greater than the nominal interest rate
The nominal interest rate approximately equals which of the following?
the real interest rate plus the inflation rate
If the Federal Reserve increases U.S. interest rates, ceteris paribus
the supply curve of U.S. dollars shifts leftward and the supply curve of European euros shifts rightward.
Which of the following situations best describes an individual who is cyclically unemployed?
Nicholas was laid-off when orders for General Motors cars fell during a recession.
The calculation of the final goods and services sold in an economy would NOT include
General Motors' purchases of tires for new automobiles
Which of the following applies to the use of money as a unit of account? I.A unit of account is an agreed measure for stating the prices of goods and services. II.Using money as a unit of account creates a simplified pricing system. III.Economies choose many goods as units of account.
I and II
Which of the following functions are performed by depository institutions? I.They make long-term loans using short-term deposits, thereby creating liquidity. II.They efficiently gather funds from a large base of depositors. III.They concentrate risk.
I and II
Which of the following is TRUE regarding real GDP? I.Real GDP is the value of the total production of the country's farms, factories, shops, and offices. II.Real GDP rises whenever inflation occurs. III.Real GDP does not measure all that is produced.
I and III
Real GDP does not show the state of economic welfare in a country in part because GDP omits I.household production. II.leisure time available. III.the quality of the environment.
I, II and III
Real GDP grows when I.the quantities of the factors of production grow. II.persistent advances in technology make factors of production increasingly productive. III.human capital grows.
I, II, and III
Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? I.government expenditures on goods and services and taxes II.the government budget deficit or surplus III.changes in the federal funds rate
III only
If investment decreases, the AE curve shifts
If investment decreases, the AE curve shifts
In 2009, just after taking office, President Obama approved an $800 billion stimulus package of tax cuts and increased government spending to combat the recession brought on by the financial crisis of 2007. Which group of economists most approved of President Obama's actions?
Keynesian economists
The budget process includes the
President proposing the budget and the Congress passing the budget.
The Federal Open Market Committee (FOMC) is composed of
Presidents of 5 Federal Reserve regional banks and the Board of Governors.
Which of the following people would be counted as is employed in the Current Population Survey?
Rich, who is working 20 hours a week but wants a full-time job
X is exports, M is imports, T is net taxes, G is government expenditure, C is consumption expenditure, S is saving, and I is investment. The government sector balance is equal to
T - G.
When the Federal Reserve increases the Federal funds rate
both the supply of bank loans and the supply of loanable funds decrease, thereby increasing the real interest rate.
Suppose the current exchange rate between the Chinese yuan and the United States dollar is 7 yuan per dollar. If the Fed sought to drive up the exchange rate to 8 yuan per dollar then it would
buy dollars
Uncertainty about monetary policy
can keep investment low.
The multiplier is the ratio of the
change in real GDP to the change in autonomous expenditures.
"IT Policy Can Spur Economic Growth, Industry Says"As staffers on Capitol Hill know all too well, the growth of technology has created an economy increasingly reliant on energy consumption, as BlackBerrys, laptops, and other devices become everyday necessities. The right policies, however, can make IT growth a part of the energy solution rather than the problem, IT representatives said Monday at a forum, in a congressional office, hosted by the Information Technology & Innovation Foundation.Information technology could reduce the expected growth in carbon emissions by one third over 10 years, said Daniel Castro, a senior analyst with the ITIF.Information and communication technology has "great promise in driving economic growth as well as reducing emissions," added David Isaacs, director of government affairs for Hewlett-Packard, but "policy should drive these results." www.news.cnet.com 11/17/2008 In order to drive economic growth in real GDP per person, the changes in information technology that the article addresses must
increase labor productivity
"Life expectancy is exceptionally high in Japan. Scores for political freedom and civil liberties approach those of peer countries in Europe...equality of opportunity is extremely weak. The country also possesses one of the longer working weeks." Japan's GDP was estimated to be $4.2 trillion (purchasing power parity) and the population was 127.4 million."Driven by its attractive climate, Brazil performs substantially better on Life Satisfaction than Material Wealth. High international demand for Brazil's commodities and raw materials has produced a sustained economic expansion since 2004, which in turn has led to job creation, wage growth and relatively low inflation. Brazilians report that they control their own lives to a substantial degree." Brazil's GDP was estimated to be $1.7 trillion (purchasing power parity) and 190 million in 2006. www.prosperity.com According to the article, we can conclude that the standard of living
might be higher in Japan because it has a higher per capita real GDP but other factors such as Brazilians' satisfaction with their lives and economic growth should be considered when determining economic well-being.