macro final study guide
Joseph earns $75,000. If his average tax rate is 18 percent, what is the total amount of money that he pays in tax?
$13,500
Which of the following financial securities is most liquid?
$20 bill
If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen per dollar, then the dollar price of the Japanese automobile is
$22,727
A bagel costs $1 in New York and 0.5 euros in Paris. If the real exchange rate is one-half of a New York bagel for a Parisian bagel, how many euros should you receive in exchange for $1?
0.25
A bottle of wine costs $50 in New York, and it takes 0.92 euros to buy 1 U.S. dollar. How much would the bottle of wine cost in Paris?
46 euros
Which of the following would be considered a fiscal policy action?
A tax cut is designed to stimulate spending during a recession.
Are federal expenditures higher today than they were in 1960?
As a percentage of GDP, federal expenditures have increased since 1960.
Are federal purchases higher today than they were in 1960?
As a percentage of GDP, federal purchases have decreased since 1960.
Rob Crusoe and Bill Friday spent their week−long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. Use the table above to select the statement that accurately interprets the data in the table. GRAPH
Bill has a comparative advantage in picking berries.
Rob Crusoe and Bill Friday spent their week−long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. GRAPH
Bill has an absolute advantage in picking berries and Rob has an absolute advantage in catching fish.
Fiscal policy is determined by
Congress and the President
Which of the following is considered expansionary fiscal policy?
Congress decreases the income tax rate.
What is the difference between federal purchases and federal expenditures?
Federal purchases require that the government receives a good or service in return, whereas federal expenditures include transfer payments.
Expansionary monetary policy refers to the ________ to increase real GDP.
Federal Reserve's increasing the money supply and decreasing interest rates
Which of the following best explains the difference between commodity money and fiat money?
Fiat money has no value except as money, whereas commodity money has value independent of its use as money.
The catch-up prediction of economic growth models predicts that ________ across countries will converge over time.
GDP per capita
Which of the following is true of a progressive tax system?
High−income households pay a higher percentage of their income in taxes.
Assume that Honduras has a comparative advantage in producing bananas and exports bananas to Brazil. We can conclude that
Honduras has a lower opportunity cost of producing bananas relative to Brazil.
The narrowest official definition of the money supply is
M1
Madison and Austin own Cafe Ole'. The table above lists the number of empanadas and tacos Madison and Austin can each make in one hour.GRAPH
Madison has a comparative advantage in making tacos.
Madison and Austin own Cafe Ole'. The table above lists the number of empanadas and tacos Madison and Austin can each make in one hour.GRAPH
Madison has an absolute advantage in making empanadas and tacos.
Rob Crusoe and Bill Friday spent their week−long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. Use the table above to select the statement that accurately interprets the data in the table. GRAPH
Rob has a comparative advantage in catching fish.
Rob Crusoe and Bill Friday spent their week−long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. Use the table above to select the statement that accurately interprets the data in the table. GRAPH
Rob has a greater opportunity cost than Bill for picking berries.
What is one difference between stocks and bonds?
Stocks represent partial ownership in a firm, while bonds do not.
If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?
Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.
Which of the following is true in the United States?
The central and local governments collect taxes.
How are intermediate goods treated in the calculation of GDP?
Their value is not counted separately, but included as part of the value of the final good for which they are an input.
If the dollar depreciates against the Indian rupee,
U.S. exports to India become less expensive.
The purchase by a household in China of an automobile produced in the United States is included in
U.S. net exports.
Contractionary monetary policy on the part of the Fed results in
a decrease in the money supply, an increase in interest rates, and a decrease in GDP.
Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there aren't any jobs available. You would be counted as
a discouraged worker.
The statement, "My iPhone is worth $700" represents money's function as
a unit of account
________ is the ability to produce more of a good or service than competitors when using the same amount of resources.
absolute advantage
The ________ shows the relationship between the price level and quantity of real GDP demanded.
aggregate demand curve
Which of the following would cause the dollar to appreciate?
an increase in the demand for dollars
An increase in wealth in the U.S. will lead to which one of the following in the foreign exchange market?
an increase in the supply of dollars
Government spending ________ is included in gross domestic product.
at federal, state, and local levels of government
In an economy with ________, there are more prices than in an economy with ________.
barter; money
Why do many low-income countries have low growth rates?
because of wars and revolutions; because of low rates of saving and investment; because of poor public education and health
________ are financial securities that represent promises to repay a fixed amount of funds.
bonds
A ________ occurs when government spending exceeds tax revenue.
budget deficit
In comparison to a government that runs a balanced budget, when the government runs a budget deficit,
business investments will fall
Transfer payments refer to payments from the government to ________.
certain individuals or groups such as the elderly or the unemployed
The level of long−run aggregate supply is affected by all of the following except
changes in the price level.
has no or very little value except as money.
citizens accept the good as a means of payment for transactions and debts.
Silver is an example of a
commodity money
An economic principle that explains why people pursue different occupations is
comparative advantage.
The largest component of spending in GDP is
consumption spending.
The real exchange rate is defined as the
cost of a basket of goods and services in one country compared to the cost of the same basket in another country.
Which countries grow faster?
countries that have a strong rule of law
M1 does not include
credit card balances
The response of investment spending to an increase in the government budget deficit is called
crowding out
Workers who lose their jobs because of a recession are experiencing
cyclical unemployment.
An expected appreciation of the dollar, everything else held constant, should cause the
demand for dollars to increase.
Purchasing power parity says that
differences in inflation rates between countries will create changes in exchange rates.
Venmo is an example of a peer-to-peer payment system where funds are transferred
directly from one user to another
When an unemployed person drops out of the labor force, it
does not affect the employment-population ratio.
Autarky is a situation in which a country
does not trade with other countries.
Gross domestic product in the economy is measured by the
dollar value of all final goods and services produced in the economy.
The Industrial Revolution began in
england around 1750
The theory of purchasing power parity
extends the law of one price to a basket of goods.
An increase in the money supply is a discretionary fiscal policy which will increase aggregate demand.
false
Monetary policy is conducted by the U.S. Treasury Department.
false
Fiscal policy refers to changes in
federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
A transfer payment is a payment by the government to an individual
for which the government does not receive a good or service in return.
When the economy is at full employment, which types of unemployment remain?
frictional and structural
Congress and the president carry out fiscal policy through changes in
government purchases and taxes
Fiat money
has no or very little value except as money.
Commodity money
has value independent of its use as money.
Which of the following is an objective of fiscal policy?
high rates of economic growth
Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
higher; higher
Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
higher; higher
Increasing growth rates of GDP per capita and sustaining these growth rates in an economy can
increase standards of living
technological advances generally result in
increased life expectancy
During the recession phase of the business cycle,
interest rates are usually falling.
what increases labor productivity
inventions of new machinery, equipment, or software
social security
is a system whereby current retirees are paid from taxes collected from current workers.
The law of one price
is based on arbitrage
the law of one price
is based on arbitrage
If the per−worker production function shifts down,
it now takes more capital per hour worked to get the same amount of real GDP per hour worked.
Which is not one of the criteria necessary for a commodity to make a suitable medium of exchange?
it should have intrinsic value
the quantity of goods and services that can be produced by one worker or one hour of work is referred to as
labor productivity
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is _________, so the quantity of money demanded will be _________.
low; high
Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
lower; lower
In a regressive tax system, ________.
low−income households pay a higher percentage of their income in taxes
The Fed is said to have a" dual mandate" because
maintaining price stability and high employment are the two most important goals of the Fed that are explicitly mentioned in the Employment Act of 1946.
Appreciation of the real exchange rate
makes U.S. exports more expensive to foreigners.
The Fed's two main monetary policy targets are
money supply and interest rate
The difference between a nominal variable and a real variable is that
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.
If households in the economy decide to take money out of checking account deposits and hold it as currency, this will initially
not change M1 and not change M2
If credit card balances rise in the economy, then M1 will ________ and M2 will ________.
not change; not change
If the ________ cost of production for two goods is different between two countries then mutually beneficial trade is possible.
opportunity
The employment-population ratio measures the
percentage of the working age population that is employed.
The long run aggregate supply curve shows the relationship between the ________ and ________.
price level; quantity of real GDP supplied
Which of the following are goals of monetary policy?
price stability, economic growth, and high employment
The Federal Reserve's four goals of monetary policy are
price stability, high employment, economic growth, and stability of financial markets and institutions.
A baseball fan with a Mike Trout baseball card wants to trade it for a Manny Machado baseball card, but everyone the fan knows who has a Machado card doesn't want a Trout card. Part 2 Economists characterize this problem as a failure of the
principle of a double coincidence of wants.
good measure of the standard of living is
real GDP per capita
Which piece of information is needed in order to determine whether a U.S. dollar will buy more in the U.S. or in a foreign country?
real exchange rate
The period between a business cycle peak and a business cycle trough is called
recession
One reason governments impose taxes is to ________.
redistribute funds via transfer payments
A restaurant charges its customers 12 percent of the total food price in tax. This is an example of a ________ tax.
sales
The Fed can attempt to increase the federal funds rate by
selling Treasury bills, which decreases bank reserves.
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
If labor productivity growth slows down in a country, this will
slow down the increase in real GDP per capita.
The type of unemployment most likely to result in hardship for the people who are unemployed is
structural because this type of unemployment requires retraining to acquire new job skills.
A budget surplus occurs when ________.
tax revenue exceeds government spending
Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment.
taxes; expenditures
An example of an intermediate good would be
the bread that goes into a sub sandwich that is sold by Quiznos.
A period of expansion in the business cycle ends when
the business cycle reaches its peak.
Liquidity refers to
the ease with which a financial security can be traded for cash.
Liquidity is defined as
the ease with which a given asset can be converted to a medium of exchange.
Which of the following is true about the Federal Reserve and its ability to prevent recessions?
the federal reserve cannot realistically fine-tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be.
What two factors are the keys to determining labor productivity
the level of technology and the quantity of capital per hour worked
The real and nominal exchange rates differ in the sense that
the nominal exchange rate does not reflect differences in purchasing power between currencies.
When the Fed uses contractionary policy,
the price level rises less than it would if the Fed did not pursue policy.
The price of domestic goods in terms of foreign goods is referred to as
the real exchange rate.
Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if
there is technological change.
The largest and fastest−growing category of federal government expenditures is
transfer payments
When an unemployed person drops out of the labor force, the unemployment rate
understates the true degree of joblessness in the economy.
Madison and Austin own Cafe Ole'. The table above lists the number of empanadas and tacos Madison and Austin can each make in one hour.GFRAPH
Madison's opportunity cost for making tacos is less than Austin's.
The three types of unemployment are
frictional, structural, and cyclical unemploment.
Assuming that the United States is the domestic economy, ________ are goods and services produced by ________ and purchased by ________.
imports; foreign countries; the United States
Inflation tends to ________ during the expansion phase of the business cycle and ________ during the recession phase of the business cycle.
increase; decrease