Macro Final
GDP Income Approach
GDP = wage + profit + rent + interest
Definitions of Saving
national saving, private saving, government saving
All else the same, the law of demand defines a: - positive relationship between income and quantity demanded. - negative relationship between income and quantity demanded. - positive relationship between price and quantity demanded. - negative relationship between price and quantity demanded.
negative relationship between price and quantity demanded.
Many consumers believe goods X and Y are complements. An increase in the price of good X will cause: - a decrease in demand for good Y. - an increase in demand for good Y. - a decrease in supply of good Y. - an increase in supply of good Y.
a decrease in demand for good Y
Consider a production possibilities frontier. Which points are efficient? - points on or outside the frontier - points on or inside the frontier - points outside the frontier - points on the frontier
points on the frontier
You read in the paper that there has been a steady increase in real gross domestic product and a steady increase in the price level. This is most likely the result of: -a negative demand shock - a positive demand shock - a positive supply shock - a negative supply shock
positive demand shock
The supply curve is upward sloping because: - lower prices encourage people to buy more units. - higher prices encourage people to buy fewer units. - higher prices encourage firms to devote more resources to producing the good. - higher prices encourage firms to enter the industry.
higher prices encourage firms to devote more resources to producing the good.
Leslie can produce 2 pairs of pants in an hour and Jane can produce 3 pairs of pants in an hour. It must be the case that? - Leslie has a comparative advantage in producing pants. - Jane has a comparative advantage in producing pants. - Leslie has an absolute advantage in producing pants. - Jane has an absolute advantage in producing pants.
Jane has an absolute advantage in producing pants.
Macro Markets
Labor, Loanable funds, AD/AS
A price index is a measure of: - a current value relative to a base value - a current value minus a base value - a base value minus a current value - a base value relative to a current value
a current value relative to a base value
Output > Potential GDP
above average sales, below average unemployment, resources in high demand, wages and prices rise
The government spending category (G) of GDP includes: - all government expenditures except interest payments. - all government expenditures. - all government expenditures on new final goods and services. - all government expenditures and taxes.
all government expenditures on new final goods and services.
Marginal Analysis
an activity should be undertaken if the marginal benefit is at least as great as the marginal cost
Which of the following does NOT result in an increase in real output? - an increase in the capital stock - an increase in inflation - an increase in labor -an increase in average labor productivity
an increase in inflation
During the holiday season airline tickets are most expensive and at the same time more people choose to fly. This can be explained by: - a decrease in the supply of tickets - an upward movement along the demand curve - an upward movement along the supply curve - an increase in the demand for tickets
an increase in the demand for tickets
The CPI in a given year is 145. This is a measure of the: -average level of current prices relative to base year prices. - real wage over the past year. - rate of inflation over the past year. - standard of living over the past year.
average level of current prices relative to base year prices
Real GDP
base price x current output
Output < Potential GDP
below average sales, above average unemployment, wages and prices fall
Nominal Wage
cost of hiring the extra worker
Nominal GDP
current price x current output
Inventory investment is negative if: -current sales are less than current production. - current sales are greater than current production. - firms are selling their goods at a price that is below the cost of production. - the firm's value added is negative.
current sales are less than current production.
If firms are less confident about the state of the economy then investment spending by firms will ------ and the ---- curve will shift ----
decrease AD left
An increase in the level of migration to Europe can be expected to cause the equilibrium real wage to ______ and the equilibrium level of employment to ___________. decrease ; decrease increase ; increase decrease ; increase increase ; decrease
decrease : increase
Several states have voted to increase their minimum wage to $10 per hour. We would expect that the increase in the minimum wage would lead to a(n) ____ in the quantity of workers demanded and a(n) _____ in the quantity of workers supplied. - increase : decrease - increase : increase -decrease : decrease - decrease : increase
decrease : increase
After researching majors that offer the highest starting salary, more students decide to become economics majors. All else the same, we would expect the future wage for economists to ____ due to a shift in _____. -decrease : labor demand - increase : labor supply - decrease : labor supply - increase : labor demand
decrease : labor supply
Jane is a high school math teacher. When her husband is transferred to another state with his company she quits her job so she can move with him. She can be classified as: -structurally unemployed - not part of the labor force - frictionally unemployed - cyclically unemployed
frictionally unemployed
Open Economy
funds can flow in or out of a country, exchange rate, net export effect
GDP is best defined as: - the market value of all final goods and services produced during a given year. - the cost of producing all final goods and services sold during a given year. - the market value of all final goods and services sold during a given year. - the cost of producing all final goods and services during a given year.
- the market value of all final goods and services produced during a given year.
John works part-time for a moving company and earns a total of $137 each weekend. Next weekend a friend has invited him on a cruise that will cost him a total of $480. If he goes on the trip he will not be able to work. What is John's opportunity cost of going on the trip? Enter a whole number with no dollar sign.
617
AD- Factors that affect spending
Consumption, Investment, Government Spending, Net Exports
GDP Expenditure Approach
GDP = C+I+G+NX
GDP Value Added Approach
GDP = sum of value added for all firms
The price of a good has gone down. What would be a good explanation of this? - the price of a substitute good has gone up. - the cost of a key input used to produce the good has declined. - there was an excess demand for the good in the market. - there are now fewer firms selling the good.
the cost of a key input used to produce the good has declined.
A production possibilities frontier illustrates: - the quantity of labor required to produce each additional unit of output. - the quantity of a good produced as more labor is employed. - the different quantities of two goods that can be produced at the same cost. - the different quantities of two goods that can be produced with given resources.
the different quantities of two goods that can be produced with given resources.
A basket of goods and services purchased by an average urban consumer has a cost of $200 in 2012, $210 in 2013, and $220.50 in 2014. You may assume the base year is 2012. The inflation rate between 2012 and 2013 was: -1% - 5% - 10% - 2.5%
5
Price of Output
$ value of the output produced by the extra worker
John collects aluminum cans and sells them to a recycling firm to make extra cash. Each can he finds earns him 10 cents. He also has an open offer to help out his friend who has a landscaping business. Each hour he works for his friend he is paid $10 per hour. John works 5 hours a day and experience has shown that he finds more cans the more hours he spends searching based on the following schedule: He finds 250, 410, 520, 600, or 660 cans in total if he works 1, 2, 3, 4, or 5 hours respectively. What is the marginal benefit of spending the first hour searching for cans, measured in dollars? - $250 - $16 - $2,500 - $25
$25
A country has constant opportunity cost of production. If they devote all of their resources to the production of blankets they can produce a total of 531 per week. If they devote all of their resources to the production of t-shirts they can produce a total of 282 shirts per week. What is the opportunity cost of producing 1 t-shirt?
1.88
You have been offered an extra shift at work this Friday and this will allow you to earn an extra $100. Your friend has invited you to go to Disney the same day and this will cost you $120. What is the implicit cost of going to Disney? - 20 - 100 - 120 - 220
100
John B. Retired owns a house on a 10-acre lot filled with apple trees. Each year he hires a few workers to pick the apples and he sells them to Betty's Pies for $5,000. Betty uses the apples to makes pies that she sells for $8,000 to local restaurants. The local restaurants sell the pies (by the slice) to consumers for $10,000. As a result of these transactions GDP increases by $ --- The value added by John is $ ---- the value added by Betty is $ ----- and the value added by the local restaurants is $ -----
10000 5000 3000 2000
A latte in the U.S. costs $4.00. An identical latte in Country X costs 50 casatas. The implied exchange rate between the two currencies is _____ casatas per $. At this rate of exchange a good that costs $30 in the U.S. should be expected to cost ____ casatas in Country X. - 12.5 : 375 - 12.5 : 2.4 -0.08 : 2.4 - 0.08 : 375
12.5 : 375
Jane has hired a worker to pass out flyers that advertise her business. It costs her $120 per day to have this worker travel around town and pass out flyers, and this includes the cost of printing the flyers. Jane is trying to decide how many days per month she should hire this worker to pass out flyers. Each customer spends an average of $10 when they visit her store. She has been tracking her monthly customers as a function of the number of days per month flyers are passed out and has found the following information: Days of Flyers Per month: 0,1,2,3,4 Total Customers: 800,880,940,980,990 What is the marginal cost of hiring the worker to pass out flyers for 1 day per month?
120
In 1980 you earned $30,000 and the CPI had a value of 86.3. In 2010 you earned $82,500 and the CPI had a value of 219.2. Between the two years the inflation rate was ----- Your nominal income increased by ----- and your real income increased by -----
154 175 8
Snap and Bolt are two countries that both produce bananas and sugar. In Snap each worker in a one-hour period can produce either 13.15 pounds of bananas or 7.07 pounds of sugar. In Bolt each worker in a one-hour period can produce either 13.29 pounds of bananas or 2.15 pounds of sugar. Suppose both countries have constant opportunity cost of production and decide to specialize and exchange. The country that specializes in sugar is willing to sell 100 pounds of sugar for at least _____ pounds of bananas.
186
Jane has hired a worker to pass out flyers that advertise her business. It costs her $120 per day to have this worker travel around town and pass out flyers, and this includes the cost of printing the flyers. Jane is trying to decide how many days per month she should hire this worker to pass out flyers. Each customer spends an average of $10 when they visit her store. She has been tracking her monthly customers as a function of the number of days per month flyers are passed out and has found the following information: Days of Flyers per month: 0,1,2,3,4. Total customers: 800,880,940,980,990. How many days per month should Jane hire this worker to pass out flyers? Enter a whole number only with no other characters.
3
Bob makes $60,000 per year. If the price index changes from 232 to 238.96 then the inflation rate is equal to ____ and his employer should give him a raise equal to ____ in order to keep his real wage constant. - 6.96% : $4,176 - 3% : $1,800 - 6.96% : $41,760 - 3% : $18,000
3% : $1,800
If nominal GDP is growing at 5% per year, the inflation rate is 2% per year, and population growth is -1% per year then real GDP per capita is growing at ___ percent per year. - 3 - 2 -4 -6
4
John collects aluminum cans and sells them to a recycling firm to make extra cash. Each can he finds earns him 10 cents. He also has an open offer to help out his friend who has a landscaping business. Each hour he works for his friend he is paid $10 per hour. John works 5 hours a day and experience has shown that he finds more cans the more hours he spends searching based on the following schedule: He finds 250, 410, 520, 600, or 660 cans in total if he works 1, 2, 3, 4, or 5 hours respectively. Given that John can devote all 5 work hours to either activity, or he can divide the hours between activities, what is the largest amount of income he can earn for all 5 hours? - 76 - 66 - 50 - 72
72
You and your two best friends all make $75,000 per year. Friend A lives in a city where prices on average are 5% lower. Friend B lives in a city where prices on average are 8% higher. Friend A has a purchasing power parity adjusted income of $ ------ and friend B has a purchasing power parity adjusted income of $ -----
78947 69444
Jane has hired a worker to pass out flyers that advertise her business. It costs her $120 per day to have this worker travel around town and pass out flyers, and this includes the cost of printing the flyers. Jane is trying to decide how many days per month she should hire this worker to pass out flyers. Each customer spends an average of $10 when they visit her store. She has been tracking her monthly customers as a function of the number of days per month flyers are passed out and has found the following information: Days of Flyers Per Month: 0,1,2,3,4 Total Customers: 800,880,940,980,990 What is the marginal benefit of hiring the worker to pass out flyers for 1 day per month? Enter a whole number only with no other characters.
800
GDP Deflator
= price index
When the price of good A rises, consumers buy less of good B and more of good C. Which goods are complements? - all of them are complements. - A and B - A and C - B and C
A and B
Which of the following would shift the supply curve for laptop computers to the right? - A string of lawsuits forces one of the biggest producers of laptops out of the laptop market. - A reduction in the cost of producing computers causes firms to reduce the price of a laptop. - All college students are now required to own a laptop computer. - A rising number of students decide that tablets like the iPad are a good substitute for a laptop.
A reduction in the cost of producing computers causes firms to reduce the price of a laptop.
Which of the following would shift the demand curve for laptop computers to the right? - A reduction in the cost of producing computers causes firms to reduce the price of a laptop. - A string of lawsuits forces one of the biggest producers of laptops out of the laptop market. - All college students are now required to own a laptop computer. - A rising number of students decide that tablets like the iPad are a good substitute for a laptop.
All college students are now required to own a laptop computer
GDP Approaches
Expenditure, Income, Value added
Equation for Opportunity Cost
Explicit + Implicit
The Multiplier Effect
Government spending multiplier, tax multiplier
RGDP Per Capita Growth Rate
Growth rate NGDP - growth rate of price level - growth rate of population
What counts in GDP
New final goods: books, cars, computers. Services: lawn, doctor, businesses that sell used goods
Comparative Advantage
People should specialize in production of that good for which they have the lowest opportunity cost. Gains from trade. Beneficial rate of exchange.
Purchasing Power Parity
Purchasing power is not the same in all cities and countries. Use similar good or basket of goods to determine how much lower/higher the price level is
The price of gas rises during the summer because more people take vacations and so they drive more miles. This is best represented by: - a downward movement along the demand curve - a rightward shift of the demand curve - a leftward shift of the demand curve - an upward movement along the demand curve
Rightward shift in the demand curve
Bill and Ted have a pizza shop. In one hour Bill can make 10 pizzas or he can deliver 4 pizzas. In one hour Ted can make 15 pizzas or he can deliver 5 pizzas. They both work 8 hours a day and can make or deliver the quantities of pizza given above in any given hour. Based on this information, Bill should _____ and Ted should ______. - make pizza : deliver pizza - divide the day between both activities : divide the day between both activities - do nothing : do everything - deliver pizza : make pizza
deliver pizza: make pizza
The equilibrium price and quantity of a good have both increased. Which of the following is a valid explanation? - demand decreased - supply increased - supply decreased - demand increased
demand increased
When we add up the value of consumption, investment, government purchases, and net exports this is known as the: - income approach. - production approach. - expenditure approach. - value added approach.
expenditure approach.
Net exports is defined as: - the value of goods produced in the U.S. and sold to foreigners - exports plus imports - exports minus imports - imports minus exports
exports minus imports
Marginal Product of Labor
extra output produced by the last worker hired
What causes economic growth?
factors of production, Determinants of productivity
John earns a salary of $75,000 per year. His company has been struggling over the past 3 years so none of the employees have received a pay raise. At the same time, the inflation rate has been positive during each of the three years. John is likely to feel like he can buy _____ goods and services and therefore his real salary will be ____ than his nominal salary. - fewer : higher - fewer : lower -more : higher - more : lower
fewer : lower
A new style of casual service restaurant opens in a city. Residents flock to the restaurant in large numbers and lines to get in remain long. As the number of people who want to eat at this new restaurant increases you would expect the equilibrium price of meals to -------- and the equilibrium quantity of meals sold to ------. After awhile several other restaurants open and offer the same style of food. All else the same when the new restaurants open we can expect the equilibrium price of meals to ------ and the equilibrium quantity of meals to ------
increase increase decrease increase
More firms find they need to hire computer programmers to manage their websites and computer systems. In the market for computer programmers in the short run, we would expect the wage for computer programmers to ___ due to a shift in _____. - decrease : labor supply - decrease : labor demand - increase : labor demand - increase : labor supply
increase : labor demand
If you observed the equilibrium wage rate increasing while equilibrium employment increased, which of the following would be a possible explanation? - an increase in labor supply - an increase in labor demand coupled with a decrease in labor supply - an increase in labor demand - a decrease in labor demand
increase in labor demand
The supply curve illustrates that firms: - decrease the quantity supplied of a good when input costs fall. - decrease the quantity supplied of a good when the price of the good rises. - increase the quantity supplied of a good when input costs rise. - increase the quantity supplied of a good when the price of the good rises.
increase the quantity supplied of a good when the price of the good rises.
A country should specialize in producing the goods for which: - it can produce a larger quantity than any other country. - it has the highest opportunity cost. - it has a comparative advantage. - it has an absolute advantage.
it can produce a larger quantity than any other country
For a given question to be considered an economic question, it must involve: - prices. - money. - making a decision under scarcity. - exchange in the market.
making a decision under scarcity.
Output = Potential GDP
normal level of sales, prices are stable
The investment category of GDP has three components. They are: - purchases of new capital, residential investment, and inventory investment. - government investment, business investment, and financial investment. - purchases of durable goods, purchases of intermediate goods, and inventory investment. - stocks, bonds, and mutual funds.
purchases of new capital, residential investment, and inventory investment.
A basket of goods and services purchased by an average urban consumer has a cost of $200 in 2012, $210 in 2013, and $220.50 in 2014. You may assume the base year is 2012. The inflation rate between 2012 and 2013 was _____ the inflation rate between 2013 and 2014. -lower than - the same as - higher than
same
A farmer is trying to decide how many gallons of water to apply to his cotton crop. He should apply more water as long as: - profit remains positive. - the marginal benefit of more water is at least as great as the marginal cost of more water. - the total benefit of more water is at least as great as the total cost of more water. - the extra water results in an increase in the cotton yield per acre.
the marginal benefit of more water is at least as great as the marginal cost of more water.
Which of the following would cause the equilibrium price of a good in a college town to fall? - fewer stores sell the good - the price of another good that substitutes for this good falls - student enrollment at the college rises by 10% - the cost of producing the good rises
the price of another good that substitutes for this good falls
To compare the well being of people in countries A and B it is best to compare: - the value of real GDP in each country. - the real value of the production of goods and services in each country. - the value of real GDP per capita in each country. - the real value of the consumption of goods and services in each country.
the value of real GDP per capita in each country.
Opportunity cost is defined as: - the amount of money spent to take part in the activity chosen. - the value of the next best alternative to the chosen activity. - all the possible foregone alternatives. - the value of all feasible alternatives to the chosen activity
the value of the next best alternative to the chosen activity
Opportunity Cost
the value of what you give up
Suppose you observe that the price of ice cream has gone up. Which of the following would be a valid explanation of the increase in the price of ice cream? - a popular new diet claims ice cream is bad for you - there are fewer ice cream stores in the area - it is winter time - milk prices have decreased
there are fewer ice cream stores in the area
The federal government of a country has government spending equal to $10 billion and taxes collected equal to $8 billion. In this case: -this is not possible - the government debt is $2 billion. - the government must cut spending and increase taxes - there is a budget deficit equal to $2 billion
there is a budget deficit equal to $2 billion
The price of gas rises during the summer because more people take vacations and so they drive more miles. This is best represented by: - a leftward shift of the supply curve an upward - movement along the supply curve - a rightward shift of the supply curve - a downward movement along the supply curve
upward movement along the supply curve
Value added
value of output produced - total cost of production
The income approach to computing GDP calculates - wages + interest + cost of intermediate goods + taxes + profit. - wages + interest + rent + profits. - revenue minus cost of intermediate goods - consumption + investment + government purchases + net exports.
wages + interest + rent + profits.