Macro final
If a country has net exports of $8 billion and sold $40 billion of goods and services abroad, then it has
$40 billion of exports and $32 billion of imports.
In an open economy, gross domestic product equals $1,950 billion, government expenditure equals $280 billion, investment equals $500, and net capital outflow equals $280 billion. What is consumption expenditure?
$890 billion
If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal interest rate is
1 percent
Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving?
1,500 and -500, respectively
In the U.S., each additional year of schooling has historically raised a person's wage on average by about
10%
The Bureau of Labor Statistics counts a member of a surveyed household as an adult if that person is at least
16 years old.
The president of a poor country has announced that he will implement the following measures which he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in domestic industries by foreigners because they take some of the profits out of the country; 4. Encourage trade with neighboring countries; and 5. Increase the fraction of GDP devoted to consumption. How many of these measures will have a positive effect on growth?
2
If the nominal interest rate is 6 percent and the rate of inflation is 4 percent, then the real interest rate is
2 percent.
The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate?
4 percent
If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is
5 percent
If M = 5,000, P = 3, and Y = 10,000, what is velocity?
6
Which of the following is generally an opportunity cost of investment in human capital?
forgone present wages
The CPI and the GDP deflator
generally move together
In Belgium, Norway, and Sweden, the percentage of workers who belong to unions is
greater than it is in the United States.
All else equal, by saving more, a country
has more resources for capital goods. The increase in capital raises productivity.
Fiat money
has no intrinsic value
Over extended periods of time, population growth
has uncertain effects on the standard of living.
The return to schooling for society is higher than the return to schooling for the individual if
human capital conveys positive externalities.
Inward-oriented policies
in some ways are like prohibiting the use of certain technologies.
Keynes believed that economies experiencing high unemployment should adopt policies to
increase aggregate demand.
When taxes decrease, consumption
increases as shown by a shift of the aggregate demand curve to the right.
In the long run, a higher saving rate
increases the level of productivity
A country with a relatively low level of real GDP per person is considering adopting two policies to promote economic growth. The first is to increase barriers to trade. The second is to restrict foreign portfolio investment. Which of these policies would most economist think would promote growth?
neither the first nor the second
Other things the same, if a country saves less, then
net capital outflow falls, so net exports fall.
Other things the same, if a country saves more, then
net capital outflow rises, so net exports rise.
Cassie purchases 1,000 shares of a mutual fund for $1,000. Cassie's purchase of these shares contributes $1,000 to which magnitude in the identity Y = C + I + G?
none of the above
A country experiencing a growth rate of 8% per year can go from being one of the poorest to one of the richest in
one generation. In the last couple of decades China's growth rate has been higher than 8%.
Edgar is working part-time. Diane is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category?
only Edgar
Economic variables whose values are measured in goods are called
real variables.
Because of its effect on the amount of capital per worker, in the short term an increase in the working population is likely to
reduce productivity. Other things the same, this decrease will be larger in a poor country.
Other things the same, a government budget deficit
reduces both public and national saving
A larger budget surplus
reduces the interest rate and raises investment
If Congress instituted an investment tax credit, the interest rate would
rise and saving would rise.
If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would
rise.
If the supply for loanable funds shifts to the left, then the equilibrium interest rate
rises and the quantity of loanable funds falls.
Other things the same, a higher interest rate induces people to
save more, so the supply of loanable funds slopes upward.
Given that Monika's income exceeds her expenditures, Monika is best described as a
saver or as a supplier of funds.
At the broadest level, the financial system moves the economy's scarce resources from
savers to borrowers.
When a large, well-known corporation wishes to borrow directly from the public, it can
sell bonds
If the government's expenditures exceeded its receipts, it would likely
sell bonds directly to the public.
In which case would people desire to borrow the most
the nominal interest rate is 8% and the inflation rate is 7%
According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
the price level and nominal wages
A policy that induces people to save more shifts
the supply of loanable funds and reduces interest rates.
Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,
their investments are being financed by someone else's saving.
The sale of stocks
to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance.
The Bureau of Labor Statistics is part of the U.S. Department of
Labor.
A closed economy does not
trade with other economies
The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:
"Diversify."
Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded.
$15 billion
In the economy of Ukzten in 2010, consumption was $1000, exports were $100, government purchases were $450, imports were $150, and investment was $350. What was Ukzten's GDP in 2010?
$1750
For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?
$2 trillion and $1 trillion, respectively
Assuming the market for loanable funds is in equilibrium, use the following numbers to determine the quantity of loanable funds supplied.
$2.5 trillion
Al's Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company, which uses the aluminum to make aluminum foil. Shiny Foil Company sells $4 million worth of aluminum foil to households. The transactions just described contribute how much to GDP?
$4 million
For the Bureau of Labor Statistics to place someone in the "unemployed" category, that person must
All of the above are correct.
The Bureau of Labor Statistics places people in the "employed" category if they
All of the above are correct.
Which of the following is consistent with the catch-up effect?
All of the above are correct.
Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?
Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
Bond A has a term of 20 years and Bond B has a term of 2 years.
It is claimed that mutual funds have two advantages. The first is that mutual funds allow people with small amounts of money to diversify. The second is that mutual funds provide the skills of professional money managers who buy stocks they believe will be the most profitable and thereby increase the return that mutual fund depositors earn on their savings.
Economists strongly agree with the first claim, but are skeptical of the second.
Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?
I
Which of the following statements about the term of a bond is correct?
Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?
Private saving is positive; public saving is negative.
If a country has a trade deficit then
S>I and Y>C+I+G
Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?
The demand for loanable funds would shift right.
Consider the expressions T - G and Y - T - C. Which of the following statements is correct?
The first of these is public saving; the second one is private saving.
Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor county to catch up?
The poor country has poorly developed property rights.
What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?
The supply of loanable funds would shift rightward and investment would increase.
In the equation Y = C + I + G + NX,
Y represents the economy's total expenditure.
Crowding out occurs when investment declines because
a budget deficit makes interest rates rise.
A perpetuity is
a financial intermediary that has existed throughout recorded history.
The law of one price states that
a good must sell at the same price at all locations
A checking deposit functions as
a medium of exchange and as a store of value.
Which of the following is a financial intermediary?
a mutual fund
Net exports must equal zero for any economy
a. that is closed. b. for which Y = C + I + G. c. for which S = Y - C - G.
The Bureau of Labor Statistics produces data on
a. unemployment. b. types of employment. c. length of the average workweek.
When deciding how much to save, people care most about
after-tax real interest rates.
A decrease in the availability of an important major resource such as oil shifts
aggregate supply left.
Natural resources
all of the above
Educated people may generate ideas that increase production. These ideas
all of the above are correct
In a simple circular-flow diagram, total income and total expenditure are
always equal because every transaction has a buyer and a seller.
All else equal, which of the following would tend to cause real GDP per person to rise?
an increase in investment in human capital
A mutual fund
an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds
If the demand for loanable funds shifts to the right, then the equilibrium interest rate
and quantity of loanable funds fall.
Which of the following is a certificate of indebtedness?
bonds but not stocks
Which of the following are financial intermediaries?
both banks and mutual funds
Which of the following provide benefits to society at large and not just to the person(s) who pursues it?
both technological knowledge that is a public good and education
Index funds
buy all the stocks in a given stock index
The inflation rate is calculated
by determining the percentage increase in the price index from the preceding period
All else equal, when people become more optimistic about a company's future, the
demand for the stock and the price will both rise.
When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures
capital investment.
Higher inflation
causes firms to change prices more frequently and makes relative prices more variable
A budget deficit
changes the supply of loanable funds.
Which of the following is both a store of value and a common medium of exchange?
checking account balances
Which of the following countries achieved higher economic growth, in part by mandating a reduction in population growth?
china
In an economy where net exports are zero, if saving rises in some period, then in that period
consumption falls and investment rises.
If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve
creates dollars and uses them to purchase government bonds from the public.
The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called
credit risk
In the past there have been violent protests against the World Bank and the World Trade Organization. The protesters argued that these institutions promote free trade and also encourage corporations in rich countries to invest in poor countries. The protesters contended that these practices make rich countries richer and poor countries poorer. An economist would
disagree with the protesters because these practices will help make both rich and poor countries richer.
Which advantage(s) do mutual funds claim to provide?
diversification and access to the skills of professional money managers
The unemployment rate is computed as the number of unemployed
divided by the labor force, all times 100.
A stock's dividend yield is the
dividend as a percentage of the price per share.
The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in Turan will
fall and remain lower for a long time.
Since the 1940's U.S. union membership has
fallen. This decline should have reduced structural unemployment
Other things equal, relatively poor countries tend to grow
faster than relatively rich countries; this is called the catch-up effect.
An Italian company builds and operates a pasta factory in the United States. This is an example of Italian
foreign direct investment that increases Italian net capital outflow.
Investment from abroad
is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries.
A country's trade balance
is greater than zero only if exports are greater than imports
The source of the supply of loanable funds is
is saving and the source of demand for loanable funds is investment
If Congress instituted an investment tax credit
it would make buying capital goods more desirable, so the demand for loanable funds would shift.
Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should
lend support to the invisible hand by maintaining property rights and political stability.
Educational attainment tends to be
low in countries with high population growth
The money supply increases when the Fed
lowers the discount rate. The increase will be larger the smaller the reserve ratio is.
The primary economic function of the financial system is to
match one person's saving with another person's investment.
A corporation's earnings are the amount of revenue it receives for the sale of its products
minus its cost of production as measured by its accountants. Earnings may be paid out as dividends or retained by the corporation.
When a country saves a larger portion of its GDP than it did before, it will have
more capital and higher productivity.
An increase in capital will increase real GDP per person
more in a poor country than a rich country. The increase in real GDP per person will be the same whether the addition to capital is from domestic or foreign investment.
An increase in capital will increase real GNP per person
more in a poor country than a rich country. The increase in real GNP per person will be larger if the addition to capital is from domestic rather than foreign investment.
Cyclical unemployment is caused by
neither frictional nor structural unemployment
The BLS counts discouraged workers as
out of the labor force. If they were counted as unemployed the unemployment rate would be higher.
If a firm's price-earnings ratio is relatively low, then it might be an indication that
people expect the firm's earnings to fall.
As the price level rises
people will want to buy fewer bonds, so the interest rate rises
The equipment and structures available to produce goods and services are called
physical capital.
banks
play a role in creating an asset that people can use as a medium of exchange
The Economic Development Minister of a country has a list of things she thinks may explain her country's low growth of real GDP per person relative to other countries. She asks you to pick the one you think most likely explains her country's low growth. Which of the following contributes to low growth?
poorly enforced property rights
If a country has Y > C + I + G, then it has
positive net capital outflow and positive net exports
Inventors often obtain patents on new products and processes, thereby turning new ideas into
private goods and increasing the incentive to engage in research
Patents turn new ideas into
private goods, and increase the incentive to engage in research
In a closed economy, what does (Y - T - C) represent?
private saving
Which of the following terms is used to refer to the ability of people to exercise authority over the resources they own?
property rights
Once an idea enters society's pool of knowledge, the idea becomes a
public good
In some countries it is time consuming and costly to establish ownership of property. Reforms to reduce these costs would likely
raise real GDP and productivity.
A larger budget deficit
raises the interest rate and reduces investment
In the loanable funds model, an increase in an investment tax credit would create a
shortage at the former equilibrium interest rate. This shortage would lead to a rise in the interest rate.
A decrease in the money supply might indicate that the Fed had
sold bonds in an attempt to increase the federal funds rate.
Which of the following is included in the investment component of GDP?
spending on new residential construction but not spending on stocks and bonds
In the first part of the decade that began in 2000, the U.S. government went from a surplus to a deficit. Other things the same, this means the
supply of loanable funds shifted to the left.
The supply of loanable funds would shift to the right if either
tax reforms encouraged greater saving or the budget deficit became smaller.
Changes in the producer price index are often thought to be useful in predicting changes in
the consumer price index.
Menu costs refers to
the cost of more frequent price changes induced by higher inflation
Suppose the U.S. offered a tax credit for firms that built new factories in the U.S.. Then
the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,
the equilibrium price level decreases.
Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?
the fund's shareholders
Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts?
the interest rate would decrease and the quantity of loanable funds would increase.
The economy's two most important financial markets are
the investment market and the saving market.
Human capital is
the knowledge and skills that workers acquire
In order to maintain stable prices, a central bank must
tightly control the money supply.
The supply of loanable funds slopes
upward because an increase in the interest rate induces people to save more.
Nominal exchange rates
vary substantially over time
The final element of a financial crisis is
vicious circle
Malthus predicted that the power of population
was greater than the power of the earth to produce subsistence. His forecast was off the mark.
