Macro Final Review

In the Keynesian aggregate-expenditure model, if the MPC is 0.75 and gross investment increase by $6 billion, equilibrium GDP will increase by

$24 billion

Which of the following fiscal policy actions would be most effective in combating a recession?

$25 billion decrease in taxes and $25 billion increase in government spending

The value of gross domestic product in 2000, in terms of 1990 prices, was

$600

If the legal reserve requirement is 25%, the value of the simple deposit expansion multiplier is

4

If 2000 was made the base year for the GDP price deflator index, the value of the index number for 1990 (rounded to the nearest whole number) would be

42

If the marginal propensity to consume is 2/3, then an increase in personal income taxes of $100 will most likely result in

A decrease in consumption of $67 and a decrease in savings of $33

Which of the following is a fiscal policy that would increase aggregate demand in the Keynesian model?

A decrease in personal income taxes

Which of the following people would be considered unemployed?

A person who stayed home to raise his children and now starts looking for a job

Which of following best describes aggregate supply?

A schedule indicating the level of real output that will be produced at each possible price level

Of the following, which is the best example of structural unemployment ?

A steel worker who is replaced by a robot

If the price index in a country were 100 for the year 2000 and 120 for 2003 and nominal GDP in 2003 was $480 billion, then real GDP for 2003 in 2000 dollars would be

About $400 billion

If the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur?

Aggregate demand will increase

Which of the following will cause the consumption schedule to shift upward?

An expectation of future shortages of essential consumer goods

Aggregate demand and aggregate supply analysis suggests that, in the short run, an expansionary monetary policy will result in

An increase in GDP without much inflation when the economy is on the horizontal portion of the aggregate supply curve

Which of the following will most likely occur as a result of an increase in labor productivity in an economy?

An increase in output and a decrease in inflation

Which of the following is true when the velocity of money falls?

An increase in the money supply will have less effect on nominal gross national product

If no policy action were taken, which of the following changes would move the economy to its long-run equilibrium?

An increase in wages

In the circular flow diagram, which of the following is true of the product market?

Business firms sells goods and services to households

The investment demand curve will shift to the right as the result of

Businesses becoming more optimistic with respect to future business conditions

To counteract a recession, the federal reserve should

Buy securities on the open market and lower the discount rate

Which of the following actions by the federal reserve will result in an increase in banks excess reserves ?

Buying bonds on the open market

Which of the following does the federal reserve use most often to combat a recession?

Buying securities

If Maria Escalera's disposable income increase from $600 to $650 and her level of personal consumption expenditures increase from $480 to $520, you may conclude that her marginal propensity to

Consume is .8

In the gross domestic product, the largest dollar amount is

Consumer spending

A change in which of the following will cause the aggregate demand curve to shift?

Consumer wealth

To reduce inflation, the Federal reserve could

Contract the money supply in order to raise interest rates, which decreases investment

Suppose that the price level in Country A increases relative to the price level in other countries. In which of the following ways are country A's imports and exports most likely to change?

Country A's imports (increase) Country A's exports (decrease)

If the reserve requirement is 25% and banks hold not excess reserves, an open market sale of $400,000 of government securities by the federal reserve will

Decrease the money supply by up to $1.6 million

Which of the following monetary and fiscal policy combination would definitely cause a decrease in aggregate demand in the short run?

Discount Rate (increase) Gov spending (decrease) open market operations (sell bonds)

Assume that the economy has a low unemployment rate and high rate of inflation. Which of the following sets of monetary and fiscal policies would be consistent and designed to reduce the rate of inflation?

Discount rate (increase) gov spending (decrease) open market operations (sell bonds)

Assume a contractionary monetary policy causes interest rates in the US to increase relative to Japan. In the short run, the value of the US dollar, the value of the Japanese yen and the US balance of trade will most likely change in which of the following ways?

Dollar (appreciate) Yen (depreciate) US balance of trade (move toward deficit)

Which of the following is most likely to increase the velocity of money?

Higher frequency of paychecks

In the circular flow diagram, which of the following is true in resource and factor markets?

Households sell resources to business firms

Automatic stabilizers in the economy include which of the following? I. a progressive personal income tax II. Unemployment compensation III. Congressional action that increases tax rate

I and II only

The M1 definition of money includes which of the following? I. Currency II. Demand deposits III. Savings accounts and small time deposits IV. Eurodollars

I and II only

Country A Fish-10 hours of labor Wheat- 20 hours of labor Country B Fish- 20 labor hours Wheat- 60 labor hours Which of the following is true? I. Country A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of wheat. II. Country B has an absolute advantage in the production of both commodities, but a comparative advantage in the production of fish. III. Mutually advantageous trade can occur between the two countries when 2.5 units of fish are exchanged for 1 unit it wheat.

I and III only

If the primary goal is to reduce inflation, which of the following fiscal policy actions would be appropriate during a period of rapidly increasing CPI? I. Reduce government expenditures for defense and space research II. Increase transfer payments to those most severely impacted by the rising price index III. Increase personal income tax rates

I and III only

Coffee Brazil-5 hrs Colombia-6 hrs Cocoa Brazil-3 hrs Colombia-3 hrs Which of the following statements are true? I. Brazil has a comparative adv in producing coffee II. Colombia has an absolute adv in producing cocoa III. Brazil has an absolute adv in producing cocoa IV. Colombia has a comp adv in producing cocoa

I and IV only

Expansionary monetary policy results in which of the following in the short run? I. The money supply increases II. The nominal interest rate decrease III. The real interest rate decreases IV. Bond prices decrease

I, II, and III only

In the US, an increase in which of the following will cause an increase in US imports? I. Per capita real income II. Price level III. Interest Rates IV. Tariffs

I, II, and III only

True statements about expansionary monetary policy in the long run include which of the following? I. Price level increases to match the increase in the money supply II. The nominal interest rate equals the real interest rate plus the expected inflation rate III. The real output level has not permanently increased

I,II, and III

which of the following explains why inflation can increase I. Increase in aggregate demand II. decrease in aggregate supply III. Increase in rate of money supply growth

I,II, and III

The CPI tends to overstate true changes in the cost of living for which of the following reasons? I. The index does not take into account a change in quality II. Consumers change purchase pattern as prices change. III. The CPI included only domestically produced goods IV. Consumers often buy at discount rather than retail

I,II,and IV only

Soda: US-20 bottles France-10 bottles Cheese: US-60 pounds France-40 pounds Which of the following are true statements? I. France has an absolute adv in producing soda II. The US has a comparative adv in producing soda III. The US has an absolute adv in producing cheese IV. The US has a comparative adv in producing cheese

II and III only

Which of the following statements about the FED funds rate are true? I. It is the same thing as the discount rate II. It is the interest rate that banks change each other III. It is influenced by open market operations

II and III only

A decrease in lump sum personal income taxes will most likely result in an increase in real GDP because which of the following occurs? I. Government spending decreases to maintain a balanced budget II. Consumption spending increases because disposable personal income increases III. Investment spending decreases because disposable personal income increases

II only

In order to be called an automatic, or built in stabilizer, which of he following must taxes automatically do in a recessionary period and an inflationary period ?

In a recessionary period taxes must decrease; In an inflationary period taxes must increase

Suppose a factory added $5,000 worth of output this year. Incidentally, the waste from this factory caused $1,000 worth of loss to the neighboring waterways. As a result, GDP will

Increase by $5,000

The neutrality of money refers to a situation where

Increases in the money supply eventually result in no change in real output

Which of the following combinations of monetary policy actions would definitely cause a decrease in aggregate demand?

Increasing the discount rate, selling government bonds, and raising the reserve requirement

A stimulative fiscal policy combined with a restrictive monetary policy will necessarily cause

Interest rates rise

if the government simultaneously engages in expansionary monetary and fiscal policies, which of the following is the likely effect on interest rates and unemployment?

Interest rates- indeterminate Unemployment- decrease

Which of the following is true about the natural rate of unemployment

It can vary over time

Suppose the Federal Reserve buys $400,000 worth of securities from the securities dealers on the open market. If the reserve requirement is 20% and banks hold no excess reserves, what will happen to the total money supply?

It will expand by $2,000,000

An increase in which of the following would cause an increase in aggregate supply?

Labor productivity

An increase in the capital stock will cause the

Long run aggregate supply curve to shift rightward

On a SRPC high rates of inflation coincide with

Low unemployment rates

When money is used as a standard of value, a person is

Making price comparisons among products

Which of the following purchases is included in the calculation of GDP?

New harvesting equipment for the farm & government purchase of a new submarine

The real interest rate is simply stated as the

Nominal interest rate minus the expected inflation rate

Which of the following is true if real GDP in Year 1 is $5,000 and in Year 2 is $5,200?

Output has increased by 4 percent

Reserves, the money supply, and interest rates are most likely to change in which of the following ways when the federal reserve sells bonds?

Reserves will decrease, money supply will decrease, interest rates will increase

If there is a decrease in the short run aggregate supply curve and no changes in monetary and fiscal policies are implemented, the economy over time will

Return to the original output and price level

A severe, sustained increase in oil prices would most likely cause short run and long run aggregate supply curves and the PPC to change in which of the following ways?

SRAS left, LRAS left, PPC shift inward

A rapid increase in successful research and development projects for the nation will most likely result in which of the following changes in the the short run and long run aggregate supply curves and PPC?

SRAS right, LRAS right, PPC shift outward

Assume that Canadian consumers increase their demand for Mexican financial assets. How would the international supply of Canadian dollars, the value of the Mexican peso relative to the Canadian dollar, and Canadian net exports to Mexico change?

Supply of Canadian dollars- increase Value of peso- increase Canadian exports- increase

In the Keynesian aggregate-expenditure model, the simple spending multiplier can be calculated by dividing

The change in real GDP by the initial change in spending

Which of the following would be counted as investment when calculating GDP?

The construction of a new home

If nominal gross domestic product fell while real gross domestic product rose, which of the following must be true?

The inflation rate was negative

Suppose that the consumer price index rises from 100 to 200. From this information we may conclude that

The prices in an average consumers market basket are doubled

One of the reasons the aggregate demand curve is downward sloping is that as the value of cash balances decreases, aggregate spending decreases. This is called

The real balance effect

As the average price level decreases, the purchasing power of people's cash balances increases this results in an increase in spending. This effect is called

The real-balance effect

The purchase of bonds by the federal reserve will have the greatest effect on real GDP if which of the following situations exists in the economy?

The required reserve ratio is low, and the interest rate has a large effect of investment spending

A commercial bank holds $500,000 in demand deposit liabilities and $120,000 in reserves. If the required reserve ratio is 20%, which of the following is the maximum amount by which this single commercial bank and the maximum amount by which the banking system can increase loans?

The single bank can increase loans by $20,000 and I he baking system can increase loans by $100,000

If the federal reserve sells a significant amount of government securities in the open market, which of the following will occur?

The total amount of loans made by commercial banks will decrease

An increase in which of the following would reduce the US balance-of-trade deficit?

The value of foreign currency relative to the US dollar

When the actual inflation rate is greater than the anticipated inflation rate, which of the following is most likely to suffer?

Those who lend at a fixed interest rate

If the US dollar appreciates in the foreign exchange market, US imports and exports are most likely to change in which of the following ways?

US imports (increase) US exports (decrease)

Which of the following transactions represents a deficit in the current account of the US balance of payments?

US tourists in great Britain purchase pounds sterling

Which of the following characteristics of money could be found in bars of gold?

Uniformity and durability

An example of the largest dollar amount of gross domestic product is

Wages and salaries to employees

In an economy with lump-sum taxes and no international trade, of the marginal propensity to consume is .8, which of the following is true?

When investment increases by $1, income increases by a maximum of $5.

The money market is definitely in equilibrium in which of the following cases?

When the quantity of money demanded is equal to the quantity of money supplied

Which of the following would best portray long-run economic growth?

a rightward shift of the long run aggregate supply curve

if exchange rates are allowed to fluctuate freely and the US demand for japanese yen increases, which of the following will happen?

americans will have to pay more for japanese goods

an expansionary monetary policy may promote long-run economic growth if it leads to

an increase in investment

the theory of rational expectations implies which of the following

attempts to decrease unemployment through government policy will be thwarted by people's reactions

To counter the crowding-out effect on interest rates caused by the government's deficit spending, the federal reserve can

buy bonds through open market operations

If egypt and venezuela begin to engage in bilateral trade, then

egypt will import corn and export cotton

What does a balance of trade deficit imply?

imports of goods and services exceed exports of goods and services

An increase in US interest rates relative to the rest of the world can be expected to

increase the international value of the dollar

the phillips curve shows the relationship between

inflation and unemployment

In the short run, in which of the following ways is an expansionary monetary policy most likely to cause the interest rate and the value of the domestic currency to change?

interest rate (decrease) value of currency (decrease)

When the unemployment rate is 10% and the CPI is rising at 2%, the federal gov cuts taxes and increases government spending. If the federal reserve buys bonds on an open market, interests rates, investment, real gross domestic product (GDP) and the price level are most likely to change in which of the following ways?

interest rates (decrease) investment (increase) real gdp (increase) price level (increase)

When the unemployment rate is 4.5% and the CPI is rising at a 12% rate, the federal government raises taxes and cuts government spending. If the federal reserve sells bonds on the open market, interest rates, investment, real gross domestic product, and the price level are most likely to change in which of the following ways?

interest rates (increase) investment (decrease) real gdp (decrease) price level (decrease)

in the short run, combining an expansionary fiscal policy with a tight money policy is most likely to cause

interest rates to rise

Which of the following is true if a nation does not have an absolute advantage in producing any good or service?

it will have a comparative advantage in the production of the good or service which it has a lower opportunity cost.

if a nation chooses to specialize and trade, which of the following situations could be expected to occur?

lower prices

If a nation's currency appreciates, in the short run its net exports and aggregate demand are most likely to change in which of the following ways?

net exports (decrease) aggregate demand (decrease)

according to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in nations where which of the following are true?

opportunity costs are lowest

if the congress and federal reserve both wished to encourage growth of productive capacity in an economy already close to full employment, it would be most appropriate to

reduce interest rates by engaging in open market operations and raise taxes on personal income

if the production possibilities curve of an economy is CD and the economy is producing at Point X, which of the following is true?

resources are not fully employed

"Sales of durable goods last month were surprisingly high. Recent price increases have pushed the CPI to more than a 7% increase for the past year. On average, the producer price index has gained 1% each month during the last year. Wage rates have increased throughout the economy, but productivity gains are minimal. The unemployment rate, however, is steady at 6%." Which of the following changes in the tax rate, government spending, and the federal funds rate are most appropriate given the state of the economy?

tax rate (increase) gov spending (decrease) federal funds rate (increase)

if the production possibilities curve of an economy shifts from AB to CD, it is most likely caused by

technology advances

If the interest rates in the US are increasing faster than the interest rates in other countries, which of the following is most likely to occur?

the demand for dollars will increase, and value of the dollar will increase

An expansionary fiscal policy will result in an increase in the interest rate unless which of the following occurs?

the money supply is increased

if the government increases spending without a tax increase and simultaneously no monetary policy changes are made, which of the following would most likely occur?

the rise in income may be greater than the multiplier would predict because the higher interest rates will crowd-out private investment spending.

the statement that "the cost of reducing the rate of inflation is that people must lose their jobs" indicates that the speaker believes in a relationship that is usually depicted by which of the following?

the short-run phillips curve

when does the law of comparative advantage indicate that mutually beneficial international trade can take place?

when relative costs of production differ between nations

Which of the following is the best measure of the production or output of an economy?

Gross domestic product

Which of the following is most likely to cause an increase in the international value of the US dollar?

High is real interest rates

Use: Corn: Egypt-400 bushels Venezuela-300 bushels Cotton: Egypt-500 bushels Venezuela-200 bushels In the absence of international trade, the opportunity cost of producing one bushel of cotton in Egypt is

0.8 bushel of corn

Vault cash and reserve accounts were similar in that each

Earn no interest

A rightward shift in the aggregate demand curve with a horizontal aggregate supply curve will cause employment and the price level to change in which of the following ways?

Employment will increase and price level will not change

The balanced budget multiplier indicated that

Equal increase in government spending and taxation will increase total spending

Which of the following would be an example of an intermediate good or service?

Gasoline purchased by an insurance agent to visit clients at their homes

The market value of all final goods and services produced in the economy in a given year is

Gross domestic product

In which of the following ways will increases in short run aggregate supple change the price level and unemployment?

Price level decrease and unemployment will decrease

Assume the aggregate supply curve is upward sloping and he economy is in a recession. If the government increases both taxes and spending by $25 billion, the price level and real GDP most likely change in which of the following ways?

Price level will increase and GDP will increase

The short-run aggregate supply curve will shift to the right when

Prices of inputs decrease

An increase in which of the following would be most likely to increase long-run economic growth?

Productivity

An increase in personal income taxes will most likely result in which of the following changes in real GDP and price level in the short run

Real GDP will decrease and prices will decrease

An increase in labor productivity would most likely cause real GDP and price level to change in which of the following ways?

Real GDP will increase and Price level will decrease

Based on the diagram above, what effect will an increase in the world supply of oil have on the real GDP and price level?

Real GDP- increase Price level- decrease

Suppose that a national government increased deficit spending in goods and services, increasing its demand for Loanable funds. In the long run, this policy would most likely result in which of the following changes in this country?

Real interest rate-increases Investment- decrease

Which of the following monetary and fiscal policy combinations would definitely cause an increase in aggregate demand?

Reserve Requirements (decrease) taxes (decrease) gov spending (increase)