Macro Final

A cash withdrawal from the banking system

-decreases reserves -decreases excess reserves -decreases deposits

Because workers in the United States work fewer hours per week, on average, than they did over 100 years ago,

GDP is lower than it would be if US workers worked the same workweek they had 100 years ago

GDP is not a perfect measure of well-being because

GDP is not adjusted for pollution

Which of the following statements is true?

The US economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas

Several studies have shown promising links between green tea consumption and cancer prevention. How does this affect the market for green tea?

The green tea demand curve shifts to the right because of a change in tastes in favor of green tea.

Which of the following best explains why productivity growth in the United States has been faster than in other leading industrialized nations?

There are fewer government regulations in the United States regarding the way firms can hire and fire workers

Which of the following is the best example of a tariff?

a $150 fee imposed on all imported residential air conditioners

A decrease in consumer confidence can put your job at risk if

aggregate expenditures fall

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

at potential GDP

The primary tool the Federal Reserve uses to increase the money supply is

buying Treasury securities

Consumption expenditures do not include household purchases of

new houses

The table above lists the highest prices five consumers are willing to pay for a concert ticket. If the price of one ticket is $50

no one will buy a ticket

If credit card balances rise in the economy, then M1 will ____________ and M2 will ____________

not change; not change

Real GDP will increase

only if the quantity of final goods and services produced rises.

Foreign direct investment in the United States declined 42 percent in the first quarter of 2009. This means that

people or firms in other countries reduced their building of facilities or purchases of facilities in the United States by 42 percent in the first quarter of 2009.

The difference between the lowest price a firm would have been willing to accept and the price it actually receives from the sale of a product is called

producer surplus

To decrease the money supply, the Federal Reserve could

raise the required reserve ratio

Since the Social Security system began in 1935, the number of workers per retiree has

continually declined

The "new economy" that emerged in the mid- 1990s is based on

information technology

In the United States in 2013, the Bureau of Economic Analysis began counting spending on research and development as ___________, which counts as a part of GDP.

investment

The real interest rate equals the nominal interest rate _____________ the inflation rate.

minus

To affect the market outcome, a price floor

must be set above the equilibrium price

In order to be binding, a price floor

must lie above the free-market equilibrium price

Trade restrictions tend to preserve ________ in the protected industries and lead to ________ in other industries.

relatively few jobs; job losses

M2 includes M1 plus

savings account balances, money market deposit accounts in banks, small-denomination time deposits, and noninstitutional money market fund shares

The CPI is also referred to as

the cost-of-living index

The sum of consumer surplus and producer surplus is equal to

the economic surplus

The discount rate is

the interest rate the Fed charges to banks for loans from the Fed

Gross domestic product understates the total production of final goods and services because of the omission of

the underground economy

Firms free ride on the research and development of other firms when they

use knowledge other firms have developed without paying for that knowledge.

If the Fed's policy is contractionary, it will

use open market operations to sell Treasury bills

If firms find that consumers are purchasing less than expected, which of the following would you expect?

Aggregate expenditure will likely be less than GDP

Which of the following would shift the supply curve for energy drinks to the left?

a decrease in the number of firms that produce energy drinks

A quota is

a limit placed on the quantity of goods that can be imported into a country

The minimum wage is an example of

a price floor

Under what circumstances would the GDP deflator be less than 100 after the base year

The GDP deflator will be less than 100 if there has been deflation relative to the base year

MPC + MPS =

1

Monthly expenditures for a family of 4 in 2015 averaged $1,400. In 2016, the cost of the same purchases was $1,500. If 2015 is the base year, what was the CPI in 2016?

107

Prices of smartphones (assume that this is a normal good) have fallen in recent years. Over this same period, the price of the components used to produce smartphones has also fallen and consumer incomes have risen. Which of the following best explains the falling prices of smartphones?

The supply curve for smartphones has shifted to the right more than the demand curve has shifted to the right.

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

by more than

The aggregate demand curve will shift to the right _________ the initial decrease in taxes

by more than

Georg, a German citizen, just purchased 10 shares of stock in Microsoft, a US company. This purchase is an example of

foreign portfolio investment

Lowering the interest rate will

increase investment projects by firms

Because minimum wage is a price floor

it will create a deadweight loss

Economic surplus is maximized in a competitive market when

marginal benefit equals marginal cost

The Industrial Revolution

marked the beginning of significant economic growth in the world

Rising prices erode the value of money as a ___________ and as a ___________.

medium of exchange; store of value

The quantity equation states that the

money supply times the velocity of money equals the price level times real output

By the 2000s, an important market change occurred when investment banks became significant participants in the secondary market for

mortgages

The income effect of a price change results in a

movement along the demand curve due to a change in purchasing power brought about by the price change.

Which is the smallest component of aggregate expenditure

net export expenditures

The easiest way for a country to obtain access to technology is through

promoting foreign direct investment

At market equilibrium

quantity demanded equals quantity supplied

Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2016 and in 2017 if the Federal Reserve does not use monetary policy. If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2017, which of the following will be lower than if the Fed had taken no action?

real GDP and the inflation rate

If prices are rising on average, then

real GDP will be greater than nominal GDP in the years before the base year.

To examine how the total production of an economy has changed over time, it would be better to examine

real GDP.

In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

the unemployment rate is very low

Depreciation is

the value of worn-out equipment, machinery, and buildings

If the price is $25

there is a surplus of 300 units

Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if

there is technological change

Bank reserves include

vault cash and deposits with the Federal Reserve

If an economy experiences deflation, the real interest rate

will be greater than the nominal interest rate

Tax cuts on business income ___________ aggregate demand

would increase

Figure 7-1 shows the U.S. demand and supply for leather footwear. Refer to Figure 7-1. Under autarky, the equilibrium price is

$30

The CPI in 1990 was 131, and the CPI in 2010 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010?

$66,565

Given the equations for C, I, G, and NX below, what is the equilibrium level of GDP? C = 2,000 + 0.9Y I = 2,500 G = 3,000 NX = 400

$79,000

Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals

$8,750

Consider the data above for a simple economy. Refer to Table 9-1. The unemployment rate for this simple economy equals

(100,1,100) x 100

Figure 4-9 shows the market for cigarettes. The government plans to impose a unit tax in this market. Refer to Figure 4-9. What is the size of the unit tax?

$5

Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2011 is the base year, then what is the CPI for 2016?

208

Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. What area represents consumer surplus at P2?

A

Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from

C to B

Which of the following statements is true about the US economy?

Each year, many new jobs are created and many existing jobs are destroyed.

If planned aggregate expenditure is greater than total production

GDP will increase

If inflation in the United States is lower than inflation in other countries, what will be the effect on net exports for the United States?

Net exports will rise as US exports increase.

Assume that the graphs in this figure represent the demand and supply curves for frozen yogurt. Which panel describes what happens in the market for frozen yogurt when the price of ice cream, a substitute product, increases?

Panel (c)

Which of the following is considered contractionary fiscal policy?

Congress increases the income tax rate.

What impact would including members of the military in employment, labor force, and working-age population statistics have on the unemployment rate and the labor force participation rate?

Including members of the military would reduce the unemployment rate and increase the labor force participation rate.

Which of the following statements about inflation targeting is true?

Inflation targeting would make it easier for households and firms to form accurate expectations of future inflation, improving their planning and the efficiency of the economy.

The following equations represent the demand and supply for bird feeders. QD = 35 - P QS = -5 + 3P What is the equilibrium price (P) and quantity (Q - in thousands) of bird feeders?

P = $10; Q = 25 thousand

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

Real GDP grows by 2.3% in the second quarter.

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibrium GDP?

Real equilibrium GDP will rise

Why doesn't the Fed have both a money supply target and an interest rate target?

The Fed does not control money demand

The equilibrium wage in a local labor market is $10 per hour. If a minimum wage of $15 per hour is imposed, which of the following will occur?

There will be an increase in unemployment

A decrease in the price of pork will result in

a smaller quantity of pork supplied

An unplanned increase in inventories results from

actual investment that is greater than planned investment

Fiat money is generally issued by

central banks

The multiplier is calculated as the

change in real GDP/ change in autonomous expenditure

Investment spending includes spending on

changes in business inventories

Autarky is a situation in which a country

does not trade with other countries

Nominal GDP will increase

if either the price level or the quantity of goods and services produced rises.

Domestic producers require time to gain experience and lower their unit costs; this will allow these producers to compete successfully in international markets. This statement describes the ________ argument for protectionism.

infant industry

In 1930, the U.S. government attempted to help domestic firms that were harmed by the Great Depression by passing the Smoot-Hawley Tariff. In response to this tariff, other countries ________ and international trade ________.

raised their tariffs; collapsed

The GDP deflator is the

ratio of nominal GDP to real GDP multiplied by 100

What is human capital

the accumulated knowledge and skills that workers acquire from education, training, and their life experiences

A general formula for the multiplier is

1/(1-MPC)

If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?

2.7%

The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. Refer to Table 9-14. The percentage change in real average earnings from 1965 to 2010 equals

24.6 percent

If the nominal interest rate is 6% and the inflation rate is 2% then the real interest rate is

4%

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn

4.4%

If the consumption function is defined as C = 7,250 + 0.8Y, what is the multiplier?

5

At a price of $25, how many units will be sold?

500

The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi) and the rest of the market. At a price of $6, the quantity demanded in the market would be

89 lbs.

The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D1 and S2 (point B). If there is an increase in number of companies producing motorcycles and a decrease in income (assume motorcycles are a normal good), the equilibrium could move to which point?

C

Trade restrictions are often motivated by a desire to save domestic jobs threatened by competition from imports. Which of the following counter-arguments is made by economists who oppose trade restrictions?

Consumers pay a high cost for jobs saved through trade restrictions

Suppose you deposit $2,000 into Bank of America and that the required reserve ratio is 10 percent. How does this affect the bank's balance sheet?

Excess reserves rise by $1,800

Autonomous expenditure is a type of expenditure that does not depend on

GDP

Which of the following provides health-care coverage to people age 65 and over?

Medicare

A technological advancement would be represented by a movement from

S1 to S2

Which of the following goods is directly counted in GDP?

a 12-inch Subway sandwich purchased by a student

Which of the following is not one of the three sources of technological change?

additional amounts of existing capital

Investment spending increases during __________, and decreases during _________.

an expansion; a recession

Most economists believe that the best monetary policy target is

an interest rate

An economic principle that explains why people pursue different occupations is

comparative advantage

An increase in the interest rate

increases the opportunity cost of holding money

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because

some individuals in both countries may be made worse off because of trade

Actual investment spending does not include

spending on consumer durable goods

When the price of a good rises, consumers buy a smaller quantity because of the ______ effect and the ______ effect

substitution; income

In the 1930s the United States charged an average tariff rate

that exceeded 50 percent

The monetary policy target the Federal Reserve focuses primarily on today is

the interest rate

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country

total consumption of goods is greater

Protectionism is the use of _____________ to protect domestic firms from foreign competition

trade barriers

Which of the following is not counted in M1

credit card balances

The natural rate of unemployment is the amount of unemployment

equal to frictional plus structural unemployment

If a bank receives a $1 million discount loan from the Federal Reserve, the the bank's reserves will

increase by $1 million

A supply curve

is a curve that shows the relationship between the price of a product and the quantity of the product supplied

According to new growth theory,

knowledge capital is subject to increasing returns.

According to Douglass North, the Industrial Revolution occurred in England because

the British Parliament took control of the government and could credibly commit to upholding property rights

Figure 4-9 shows the market for cigarettes. The government plans to impose a unit tax in this market. Refer to Figure 4-9. How much of the tax is paid by buyers?

$3

Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 7-3 illustrates the impact of the quota. Refer to Figure 7-3. What is the value of revenue to foreign producers who are granted permission to sell in the U.S. market when there is a quota?

$44 million

Table 4-4 shows the demand and supply schedules for the low-skilled labor market in the city of Westover. Refer to Table 4-4. If a minimum wage of $10.00 an hour is mandated, what is the quantity of labor demanded?

350,000

Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff. Refer to Figure 7-2. Without the tariff in place, the United States consumes

45 million pounds of coffee

Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. Refer to Figure 4-3. What area represents the deadweight loss at P2?

C + E

Monetary policy refers to the actions the

Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives

Which of the following is an example of a trade restriction?

Japan places a tax on all Korean automobiles

If the economy is in equilibrium, it is at a level of aggregate expenditure given by point

K

FICA is a payroll tax imposed on employers and workers that is used to fund Social Security and Medicare. Which of the following statements regarding the tax is true?

Most economists believe the burden of the tax falls almost entirely on workers

Assume that the graphs in this figure represent the demand and supply curves for blu-ray discs. Which panel best describes what happens in this market if there is a substantial increase in the price of blu-ray players?

Panel (d)

Figure 7-1 shows the U.S. demand and supply for leather footwear. Refer to Figure 7-1. Suppose the government allows imports of leather footwear into the United States. What will be the quantity of imports?

Q2-Q0

"Because Coke and Pepsi are substitutes, a decrease in the price of Pepsi will cause the demand for Coke to decrease. This initial shift in demand for Coke results in a lower price for Coke; this lower price will cause the demand curve for Coke to shift to the left." Which of the following correctly comments on this statement?

The statement is false because a change in the price of Coke would not change the demand for Coke

The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D1 and S1 (point A). If there is a surplus of motorcycles how will the equilibrium point change?

There will be no change in the equilibrium point

If firms sell exactly what they expected to sell, all of the following will be true except

aggregate expenditure will be greater than GDP

In the figure above, the movement from point A to point B in the money market would be caused by

an open market sale of Treasury securities by the Federal Reserve

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

by more than

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers

The table above lists the highest prices three consumers, Curly, Moe, and Larry, are willing to pay for a bottle of champagne. If the price of the champagne falls from $24 to $14

consumer surplus increases from $32 to $53

M1 includes

currency in circulation, checking account deposits in banks, and holdings of traveler's checks.

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods.

From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely

decrease interest rates

Due to low interest rates, increased banking regulations, and technological change, JPMorgan Chase announced it would ________ the number of persons it employed in 2015 and this would ________ the total number of persons unemployed in the economy.

decrease; increase

According to the World Bank, Albania does one of the worst jobs as a country enforcing the rule of law. The consequence of a weak rule of law is

difficulty in attracting investment and low economic growth.

In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

firms are operating below capacity

Which of the following is an objective of fiscal policy?

high rates of economic growth

Countries that are more globalized tend to have

higher growth rates in real GDP per capita

The difference between the __________ for a good and the __________ is called consumer surplus

highest price a consumer is willing to pay; price the consumer actually pays

Gross domestic product understates the total production of final goods and services because of the omission of

household production

An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE

includes the prices of more consumer goods and services

From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply, then the Federal Reserve would most likely

increase interest rates

If the Fed buys US Treasury securities, then this

increases reserves, encourages banks to make more loans, and increases the money supply

The law of demand implies, holding everything else constant, that as the price of yogurt

increases, the quantity of yogurt demanded will decrease

During a business cycle expansion, total production _________ and total employment __________.

increases; increases

Inflation that is _________ than what is expected benefits _____________ and hurts _________.

less; lenders; borrowers

By offering more generous unemployment insurance programs, European countries can expect

longer periods of unemployment for their workers.

Developing countries with low savings rates and poor levels of health and education are likely to experience

low rates of growth in real GDP per capita

The Federal Reserve was established in 1913 to

stop bank panics by acting as a lender of last resort

The United States has developed a comparative advantage in digital computers, airliners, and many prescription drugs. The source of its comparative advantage in these products is

technology

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy.

The slope of the consumption function is equal to

the change in consumption divided by the change in disposable income

The substitution effect of a price change refers to

the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes

In recent years, a monetary growth rule has fall out of favor because

the close relationship between movements in M1 and movements in real GDP has become weaker

If the price of smartphones was to increase, then

the demand for smartphone apps would decrease

Net worth is

the difference between a firm's assets and liabilities

In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B

the economy is below full employment

If cynical unemployment is eliminated in the economy, then

the economy is considered to be at full employment

Suppose that the level of GDP associated with point N is potential GDP. If the U.S. economy is currently at point K,

the economy is in recession

Hyperinflation can be caused by

the government selling bonds to the central bank

The federal funds rate is

the interest rate banks charge each other for overnight loans

When the Fed increases the money supply,

the interest rate falls and this stimulates investment spending

Suppose the government launches a successful advertising campaign that convinces workers with high school degrees to quit their jobs and become full time college students. This would cause

the labor force participation rate to decrease

A supply curve shows

the marginal cost of producing one more unit of a good or service

If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then

the multiplier is 8

When the Fed uses contractionary policy,

the price level rises less than it would if the Fed did not pursue policy

Suppliers will be willing to supply a product in all of the following situations except when

the price received is less than the additional cost of producing the product

If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on

the producer price index

Deadweight loss refers to

the reduction in economic surplus resulting from not being in competitive equilibrium

The major shortcoming of a barter economy is

the requirement of a double coincidence of wants

When an economy faces diminishing returns,

the slope of the per worker production function becomes flatter as capital per hour worked increases.

With the exception of during recessions, workers in Canada are eligible for unemployment benefits for about twice as long a period of time as workers in the United States. As a result,

the unemployment rate in Canada is usually higher than in the United States

For how long does a patent give a firm the exclusive legal right to a product?

20 years

Technological change is illustrated in the per-worker production function in the figure above by a movement from

B to C.

The ratio of the increase in ____________ to the increase in ________ is called the multiplier.

equilibrium real GDP; autonomous expenditure

CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200. Refer to Scenario 8-1. The value of each canoe in gross domestic product equals

$1,200

If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to

$10,000

Figure 7-1 shows the U.S. demand and supply for leather footwear. Refer to Figure 7-1. Suppose the government allows imports of leather footwear into the United States. What will the market price be?

$24