Macro final practice

$0.1 trillion

A country's multiplier is estimated as 3. Suppose this country's potential GDP is $10 trillion and the actual output is $9.7 trillion. How much extra spending is needed for the government to meet the potential GDP? $1 trillion $0.1 trillion $3 trillion $0.3 trillion

50%

Based on the information in the table, calculate the inflation rate using the GDP deflator.

This type of rapid growth will not increase the GDP per capita of those countries.

Relatively poor countries may enjoy rapid growth when investing in physical capital. Which of the following statements is NOT correct? This type of rapid growth will not increase the GDP per capita of those countries. Growth through physical capital accumulation will decelerate as physical capital stock increases. This type of rapid growth enjoyed by physical capital accumulation is called the "catch-up growth". Some economists argue that physical capital accumulation is the major driver of Asian growth miracle.

Left, increase, crowds out

(Figure: The Market for Loanable Funds) Use Figure: The Market for Loanable Funds. An increase n government deficit will shift the supply curve for loanable funds to the - causing the neutral real interest rate to - which _ private investment.

73.7

(Table: Population Data for Estill County) What is the labor force participation rate of this country in a percentage term? Round to one decimal place (ex. 3.2).

14.3

(Table: Population Data for Estill County) What is the official unemployment rate of this country in a percentage term? Round to one decimal place (ex. 3.2).

Population growth will harm economic growth.

A country's output depends on available inputs and production techniques for transforming inputs into outputs. Which of the following statements is NOT correct? Physical capital accumulation results in economic growth. Investing in human capital will boost economic growth. Population growth will harm economic growth. Female labor participation boosted economic growth in many countries.

rise by 1%p.

Based on Okun's rule of thumb, if you forecast that the output gap will decline from -2% to -4%, the unemployment rate will rise by 1%p. rise by 2° p. fall by 19p fall by 2%p

175

Below is Otter Islands' economic data. What is the value for the blank [A]?

The stock market

Choose the correct answer. An example of a leading indicator 1s: unemployment. the stock market. unemployment insurance claims. nonfarm payrolls

may not last forever due to adverse shocks.

Choose the correct description. Economic expansions: cannot last more than five years. are sharp. may not last forever due to adverse shocks. are always equal in length to economic contractions.

follow the business cycle with a delay.

Choose the correct description. Lagging indicators are variables that: tend to predict the future state of the economy. predict fiscal policy. predict monetary policy. follow the business cycle with a delay.

have short and sharp recessions, followed by long and gradual expansions.

Choose the correct description. Typically, business cycles: do not display persistence. have short and sharp recessions, followed by long and gradual expansions. last over 20 years. have short and sharp expansions, followed by long and gradual recessions.

10

Consider the data shown in the table. Assume that the economy produces only textbooks. What is the growth rate of real GDP between the two years (in %)?

Aggregate output falls and overall prices fall.

From March 2018 to September 2019, Turkey's consumer confidence index fell from 99.1 to 94.2. How would such a change impact Turkey's aggregate output and overall prices in the short run? Aggregate output falls and overall prices rise. Aggregate output rises and overall prices rise. Aggregate output falls and overall prices fall. Aggregate output and overall prices do not change.

When the interest rate goes up, savings increase

How do consumption and savings change in response to the change in interest rate? Choose the correct answer. Consumers do not consider the level of interest rate when making consumption decisions. When the interest rate goes up, savings increase Substitution effects imply that consumers will increase consumption when interest rate rises. Wealth effects imply that all consumers will increase consumption when the interest

2

If a fall in government spending by $10 billion decreases GDP by $20 billion, then the multiplier of this economy is:

GDP is 3% above potential GDP.

If an economy has a positive output gap of 3%, this means: GDP is 3% below potential GDP. GDP is 3% above potential GDP. inflation is 3% above the long-run rate of inflation. unemployment is 3% above the natural rate of unemployment.

22,204

If the interest rate is 4%, what is the approximate future value of $15,000 in 10 years? $10,133 $15,900 $17.949 $22,204

19,558

If the interest rate is 5%, what is the approximate present value of $25,000 that you will receive in fise years? $22.676 $23.810 $31.907 $19,588

Your savings increase significantly more today if you are a consumption smoother rather than a hand-to-mouth consumer.

If there is a temporary unexpected increase in your income today, how does your savings change today? Choose the correct answer. Your savings will increase significantly today if you are a hand-to-mouth consumer. Your savings will decrease significantly today if you are a hand-to-mouth consumer Your savings increase significantly more today if you are a consumption smoother rather than a hand-to-mouth consumer. Your savings will not change today if you are a consumption smoother.

$25.46 trillion; $76,399

In 2022, the United States' GDP was ( ) and its GDP per capita was ( ) $25.46 trillion; $76,399 $30.46 trillion; $96,152 $20.46 trillion; $62,318 $16.46 trillion; $57,112

Demand increase

Kazakhstan creates "special economic zones" where businesses are encouraged to invest and are given incentives for doing so. Which graph shows the effect of these newly created zones or the loanable funds • market?

4000

Mother Nature produces dirt, Tlaloc turns the dirt into brick, and Bob creates brick houses. The economy is characterized by the table.

-5%

Suppose an economy's actual real GDP is $1000 and potential real GDP is $1050. What is the output gap of this economy?

A massive increase in government spending.

Suppose that a country's GDP and overall prices are higher than before as a result of an economic shock. What is the most likely shock that this economy experiences? R A rise in geopolitical tension in commodity exporting countries. Lockdowns and stay-at-home orders. A shortage of vital intermediate inputs due to the supply chain disruption. A massive increase in government spending.

This economy is not fully utilizing its resources.

Suppose that an economy has a positive output gap. Which of the following statements is NOT true? The actual GDP of this economy is above its potential GDP. The economy could be in an expansion. This economy is not fully utilizing its resources. The economy could be in a recession

Centralized control of key industries.

Suppose you are an economic analyst with the World Bank. You have been asked by the World Bank's chief economist to prepare a memo describing the key institutional arrangements that developing countries should adopt to achieve rapid growth and high income. Which of the following is the LEAST likely to be included in your memo? Impartial enforcement of contracts. Secure property rights. Centralized control of key industries. Efficient regulation regime.

Aggregate output falls and overall prices rise.

The Russia-Ukraine war resulted in a shortage of fertilizer. How did it affect the aggregate output and overall prices of sub-Saharan countries that rely heavily on agriculture in the short run? Asgregate output rises and overall prices rise. Aggregate output rises and overall prices fall. Aggregate output falls and overall prices rise. Aggregate output falland overall prices fall.

4200

The following bullet points summarize what happened in Macroland in 2020. Compute the GDP of this economy. 1. Due to the outbreak of the pandemic, the government of Macroland purchased $1,000 worth of vaccines from a domestic producer. 2. The domestic producer of vaccine exported $800 worth of vaccines to Metricsland. 3. Consumers of Macroland spent $2,000 on the online platform that connects consumers to local farmers. 4. Firms produced $500 worth of party supplies, but only half of them were sold. 5. Due to the surge in demand for facial masks, Macroland imported $100 worth of facial masks from Metricsland.

U-6 considers whose skills are not fully utilized.

The official unemployment rate may not perfectly capture the total available labor inputs of an economy. Therefore, economists rely on alternative measures of the unemployment rate. Which of the following statements that describe U-6 is NOT correct? U-6 includes who are not working and looking for a job. U-6 considers who are willing to work but are not currently searching for a job. U-6 considers whose skills are not fully utilized. U-6 considers part-time workers who want to work more.

investment equals depreciation.

The steady state in the Solow growth model occurs when: investment is larger than depreciation. investment equals depreciation. depreciation reaches zero. investment reaches zero.

Economic growth always increases happiness.

There are many reasons why economic growth is important. Which of the following statements does NOT correctly describe the importance of economic growth? Economic growth increases living standards. Economic growth always increases happiness. Wealthier societies tend to have better health care and nutrition. Wealthier countries provide better education.

The new steady state level of capital depreciation will be smaller than before.

This graph illustrates an economy's output, investment, and capital depreciation (per worker). Suppose this economy is currently in a steady state. Suppose further that technological progress happens. Choose the answer that describes what is NOT expected to happen in this economy. The new steady state level of capital per worker will be higher than before. As productivity improves, this economy will move to a new steady state with a higher level of output per worker. Investment per worker will be larger in the new steady state. The new steady state level of capital depreciation will be smaller than before.

30

This graph illustrates the labor market of an economy. Suppose that the government of this economy introduces a minimum wage of $16. Then ( ) thousands of workers will be structurally unemployed in this economy.

19.4

Use the information in the following table to compute the inflation rate using the Consumer Price Index. Using 2000 as the base year, what is the inflation rate of this economy in a percentage term? Round to one decimal place (ex. 3.2).

The quality of CPI does not capture the real economic growth.

What is NOT the reason why the Consumer Price Index (CPI) may overstate the true change in the cost of living? The quality of product improves over time. New products replace old products. Consumers find cheaper ways to achieve the same quality of life by substituting the basket of goods and services. CPI does not capture the real economic growth.

1

What is your marginal propensity to consume (MPC) if your income rises by $5,000 and your consumption increases by $5,000?

lenders to borrowers

When inflation is higher than expected, there is redistribution from: lenders to borrowers. the government to borrowers. the government to lenders. borrowers to lenders.

Consumers' change in behavior is not reflected

Which is NOT the limitation of GDP? The shadow economy is missing. Environmental degradation doesn't count. Non-market activities are excluded. Consumers' change in behavior is not reflected

Kia's production of Telluride in Georgia, United States.

Which item will be included in the US GDP for 2023? Transaction of illegal products. Unreported babysitting paid in cash. Kia's production of Telluride in Georgia, United States. Your purchase of 2018 Honda HR-V.

Figure C

Which of the following graphs shows the correct effect on the consumption function when the life span is expected to be longer?

1,2,3

Which of the following hypotheses could explain why the aggregate supply curve is upward-sloping? (1) price rigidity (i) wage rigidity (111) misperception (iv) Fed's response to, inflation

Unemployment

Which of the following indicators will probably rise when the economy is in a recession? Real retail sales Unemployment Industrial production Real GDP growth

An increase in overall price leads governments to decrease spending to pay off their deb, which reduces government expenditures.

Which of the following is NOT a possible reason why aggregate demand curve is downward sloping? An increase in overall price leads governments to decrease spending to pay off their deb, which reduces government expenditures. An increase in overall price makes the real wealth of net savers smaller. which reduces consumption. An increase in overall price muses the domestic product relatively more expensive, which reduces net exports. An increase in overall price leads the Fed to raise interest rates, which reduces consumption and investment

The existence of hand-to-mouth consumers makes it difficult to forecast the change in aggregate consumption.

Which of the following statements about hand-to-mouth consumers and aggregate consumption is NOT correct? Hand-to-mouth consumers do not change their consumption when their future income unexpectedly changes. The existence of hand-to-mouth consumers makes it difficult to forecast the change in aggregate consumption. Even rational consumers can be hand-to-mouth consumers. The marginal propensity to consume MPC) of hand-to-mouth consumers is one.

Among business investment, housing investment, and investment in inventories, housing investment accounts for the largest share of investment.

Which of the following statements about investment is NOT correct? Renovating an existing house is counted as an investment. Among business investment, housing investment, and investment in inventories, housing investment accounts for the largest share of investment. You selected this answer. This was the correct answer. Investment increases capital stock, which leads to long-term prospenty Investment typically fluctuates more than consumption does

A high saving rate implies a high marginal propensity to consume.

Which of the following statements about saving is NOT correct? A high saving rate implies a high marginal propensity to consume. Precautionary savings increased to a large extent when Covid-19 broke out. Paying down your debt is a type of saving. One of the reasons why people save their income is the change in benefits of consumption over their life cycle.

The permanent income hypothesis implies that consumers will change their consumption when their income changes as expected

Which of the following statements about the permanent income hypothesis is NOT correct? The permanent income hypothesis implies that consumers smooth their consumption through saving and dissaving. The permanent income hypothesis assumes that consumers make their decisions based on the total resources available in their entire lives The permanent income hypothesis implies that the timing of income does not matter since consumers can borrow and save money. The permanent income hypothesis implies that consumers will change their consumption when their income changes as expected

Since the marginal benefit of consumptiot is decreasing, spreading their consumption over multiple periods gives a higher economic surplus.

Which of the following statements best describes why rational consumers smooth their consumption o throughout their lives even if their income fluctuates? Because consuming a similar amount every period makes it easier to respond to unexpected income shocks. Since the marginal benefit of consumptiot is decreasing, spreading their consumption over multiple periods gives a higher economic surplus. Since consumers are not perfectly rational, their consumption shows some habitual patterns. Since consumers are not perfectly rational, it is easy to track if they consume a similar amount every period

In the long run, government spending has no effect on prices.

Which of the following statements is NOT true? The long-run aggregate supply curve is vertical. In the long run, only supply shock can change the aggregate output of an economy. In the long run, government spending has no effect on prices. In the long run, government spending has no effect on aggregate output.

Frictional unemployment includes those involved in job search.

Which of the following statements that describe unemployment is correct? Frictional unemployment can be caused by minimum wage. Efficiency wage is one of the ways to decrease cyclical unemployment. Frictional unemployment includes those involved in job search. Structural unemployment can decrease when governments support job training to reduce skills mismatch between workers and employers.

Money competes against other assets to maintain its innate value.

Which of the following statements that describe why money makes trade easier is NOT correct? Money competes against other assets to maintain its innate value. Money provides a measuring stick with which to express relative values of goods and services, simplifying comparisons. Money eliminates the need to find trading partners who happen to possess what you want and want what you possess. Money enables you to specialize in tasks you're good at, knowing you can earn the money needed to buy the products of other individuals.

To reduce the economic cost of excessive fluctuations in economic activity.

Why do governments and central banks conduct countercyclical macroeconomic policies? To keep a positive output gap to enhance the economic well-being of economic agents. To maximize employment Correct! To improve incope distribution To reduce the economic cost of excessive fluctuations in economic activity.

Because investment is a key driver of business cycles.

Why do macroeconomists pay attention to investment? Because investment is easier to forecast than other components of GDP. Because increasing investment is the utmost goal of most governments. Because investment is a key driver of business cycles. Because investment is the largest component of GDP in most countries.

700

You are planning to buy an industrial robot whose price is $10,000, which generates $500 i profits next year. Suppose the interest rate is 4%, and the depreciation rate is 3%. What is the user cost of capital? $700 $400 $10,000 5500

Yes

You are planning to buy an industrial robot whose price is $10,000, which generates $600 in profits nextei Suppose the interest rate is 2%, and the depreciation rate is 3%. As a rational econ nic agent, are you going to buy this industrial robot?

GDP does not change

You just bought two used textbooks for $20 each. How much does GDP change because of your purchase? GDP rises by $40. GDP rises by $20. GDP does not change. GDP falls by $40.

Vinny, who is laid off last month and is preparing for the first interview.

You make some new friends at a party. Which of your new friends described here is unemployed? Katie, who is a lifeguard in the summer but does not work the rest of the year Vinny, who is laid off last month and is preparing for the first interview. Aaron, who is a full-time student on a paid internship Pete, who works two hours per week and is looking for a job

1.55%

You purchase a certificate of deposit and expect an inflation rate of 3.25% over the next year. Your nominal rate of interest is 4.55%. Over the next year, the actual inflation rate turns out to be 3.00%. What is your actual real rate of return or real interest rate?