macro-theory jungs class
Use the model developed in chapter 3, but assume that consumption decreases, other things being equal, when the interest rate rises. if there is a technological advance that leads to an increase in investment deamand:
A Investment increases and interest rate rises.
The monetary base consists of
A. Currency held by the public, plus reserves held by the banks.
All of the following actions increase government purchases of goods and services expect the:
A. Federal governments sending a social security check to Betty Jones
Exogenous Variables are
A. Fixed at the moment they enter the model.
In the classical model with fixed income, if the demand for goods and services is greater than the supply, the interest rate will:
A. Increase
All of the following are types of macro-economics data except the:
A. Price of an IBM computer.
Which of the following is a stock variable?
A. Wealth
Which of the following is an example of frictional unemployment?
A. dave searches for a new job after voluntarily moving to san diego
Variables that a model tries to explain are called:
A. endogenous
the natural rate of unemployment is:
A. the average rate of unemployment around which the economy fluctuates.
If Y=AK^0.5L^0.5 and A,K, and L are all 100, the marginal product of capital is:
A.50
If output is described by the production function Y = AK^ 0.2 L^0.8, then the production function has:
A.Constant returns to scale.
In the classical model with fixed income, if the interest rate is too low, then investment is too _____ and the demand for output ______ the supply.
A.High;exceeds
In a closed economy, y-c-g equals:
A.National Saving
Disposable personal income is defined as income after the payment of all:
A.Taxs
In the classical model with fixed income, an increase in the real interest rate could be the result of a(n):
A.increase in government spending.
All of the following policies were adopted by the government in an attempt to reduce the natural rate of unemployment except:
A.unemployment insurance
Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost 0.50$ each. In this case, that value of GDP is:
B. $7
If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ divided by ______ multiplied by B.
B. (Cr+1);(Cr+rr)
Banks create moeny in:
B. A fractional-reserve banking system but not in a 100-percent - reserve banking system
The reserve -deposit ratio is determined by
B. Business policies of banks and the laws regulating banks.
The largest component of national income is:
B. Compensation of employees.
Endogenous variables are:
B. Determined within the model.
The statistic used by economists to measure the value of economic output is:
B. GDP
If the production function describing and economy is Y=100k^.25L^.75, then the share of output going to labor:
B. IS 75 percent
The production function feature called " constant returns to scale" means if we:
B. Increase capital and labor by 10 percent each, we increase output by 10 percent.
in the neoclassical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving______ and private saving______.
B. Increases; dose not change
IN a system with 100-percent-reserve banking.
B. No banks can make loans
discouraged workers
B. Out of the labor force
(Exhibit: saving, investment, the interest rate 1) The economy begins in equilibrium at point e, representing the real interest rate, r1 at which saving s1, equals desired investmnet i1. What will be the new equilibrium combination of real interest rate,saving, and investment if the government cuts spending, holding other factors constant?
B. Point B
Consumption depends ________ on disposal income, and investment depends ______ on the real interest rate
B. Positively; negatively
A competitive, profit-maximizing firm hires labor until the:
B. Price of output multiplied by the marginal product of labor equals the wage.
All of the folowing are reasons for frictional unemployment except:
B. Unemployed workers accept the first job offer that they receive.
Since GDP includes only the additions to income, not transfers of assets, _______ are not inclded in the computation of GDP.
B. Used goods
When the fed decreases the interest rate paid on reserves, if the ratio of currecny to deposits decreases also while the monetary base is constant, then ;
B. the money supply increases
Macroeconomics dose not try to answer the question of:
B. what is the rate of return on education.
If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, private saving is
B.500
The marginal product of labor is:
B.Additional output produced when one additional unit of labor is added.
when the fed decreases the interest rate paid on reserves, it:
B.Decreases the reserve- deposit ratio (rr)
Open market operations are:
B.Federal reserve purchases and sales of government bonds.
A liquidity trap occurs when:
C) interest rates fall so low that monetary policy is no longer effective.
If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the moentary base equals:
C. $150 billion.
Assume that a rancher sells Mcdonald's a quarter-pound of meat for 1$ and that Mcdonalds sells you a hamburger made from that meat for $2. In this case, the value included in GDP should be
C. $2
A bank balance sheet consists of only the following items: deposits-$1000 Reserves -$100 Securities- $400 Debt-$500 Loans-$2000 What is the value of bank capital?
C. +$1,000
If the consumption function is given by C=150+0.85y and y increases by 1 unit, then C increases by:
C. 0.85 units
if Real GDP grew by 6 percent and population grew by 2 percent, then real GDP per person grew by approximately_________ percent.
C. 4
Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be:
C. 760
According to the model developed in chapter 3, when taxes decrease without a change in government spending:
C. Consumption increases and investment decreases.
3rd test: A production function is a technological relationship between
C. Factors of production and the quantity of output produced.
A typical trend during a recession is that:
C. Incomes Fall
The currency-deposit ratio is determined by:
C. Preferences of households about the form of money they wish to hold.
The CPI is determined by computing:
C. The price of a fixed basket of goods and services, relative to the price of the same basket in a base year.
Macroeconomists cannot conduct controlled experiments, such as testing various tax and expenditure policies, because:
C. They must make use of the data history gives them.
The quantity of money in the united states is essentially controlled by the:
C. federal reserve
which of the following is the best example of structural unemployment?
C. kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.
If the ratio of reserves to deposits (RR) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (b) is constant , then:
C. the money supply decreases
Finical inter-mediation is the process of
C. transferring funds from savers to borrowers.
If the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:
C.10 percent
In a closed economy, the components of GDP are:
C.Consumption, investment, and government purchases
The money supply consists of.
C.Currency plus demand deposits
The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply
C.Greater;greater
Real GDP is better measure of economic well-being than nominal GDP, because real GDP:
C.Measure changes in quantity of goods and services produced by holding prices constant.
GNP equals GDP _____ income earned domestically by foreigners______ income that nations earn abroad.
C.Minus: Plus
If s is the rate of job seperation, f is the rate of job findiing, and both rates are constant, then the unemployment rate is approximately:
C.s/(s+f)
If GDP (measure in billlons of current dollars) is $5,465, Consumption is $3,657, investment is $741, and government purches are $1,098, than net exports are:
D. $-31
If the currecny- deposit ratio equals 0.5 and the reserve deposit ratio equals 0.1, then the money multiplier equals:
D. 2.5
In a 100-percent- reserve banking system, banks:
D. Cannot affect the money supply
Unlike the GDP deflator, the CPI includes the prices of:
D. Imported goods.
Which of the following is a flow variable?
D. Income
When bread is baked but put away for later sale, this is called:
D. Investment in inventory
In the realtionship expressed in functional form, Y=g(k,l), Y stands for real gdp, k stands for the amount of capital in the economy, and l stands for the amount of labor in the economy. In this case G():
D. Is the function telling how the variables in the parentheses determine real GDP.
When economists speak of "the" interest rate, they mean:
D. No particular interest rate, since it is assumed that various interest rates tend to move up and down together.
The "real" interest rate is the:
D. Nominal interest rate minus the rate of inflation.
All of the following actions are investments in the sense of the term used by macroeconomists except:
D. Sandra santiago's buying 100 shares of IBM stock.
The value of net exports is also the value of:
D. The excess of national saving over domestic investment
The Equation Y=C(y-t)+I(r)+g may be solved for the equilibrium level of.
D. The interest rate
If an earthquake destorys some of the captial stock, the neoclassical theory of distribution predicts:
D. The real wage will fall and the real rental price of capital will rise.
Two equivalent ways to view GDP are as the:
D. Total income of everyone in the economy or total expenditure on the economy's output of goods and services
The unemployment resuting when real wages are held above equilibrium is called ________ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills called _________ unemployment
D. structual; frictional
Discouraged workers are individuals who:
D. want a job but have given up looking for one.
In an Economic model:
Exogenous variables affect endogenous variables.
If the is curve is given by y=1,700-100r and the lm curve is given by y=500+100r, then the equilibrium income and interest rate are given by
a y=1.100, r=6 percent
which panels illustrates the impact on the real exchange rate contractionary fiscal policies at home?
a. (A)
In a small open economy, if exports $5 billion and imports equal $7 billion, then there is a trade _____ and ____ net captial outflow.
a. Deficit; Negative
A tax cut shifts the _____ to the right, and the aggregate demand curve ____.
a. IS; Shifts to the right
if the government of a small open economy wishes to reduce a trade deficit, which policy action will be sucessful in acheivign this goal?
a. Increasing taxs
A small open economy with perfect capital mobility is characterized by all of the follwing except that:
a.Its domestic interet rate always exceeds the world interest rate
Changes in monetary policy shift the
a.LM curve
The IS curve plots the realtionship between the interest rate and _____ that arises in the market for____.
a.National income: goods and services
other things being equal, a given change in government spending has a larger effect on demand the:
a.flatter the lm curve
According to the thoery of liquidity preference, holdig the supply of real money balances constant, an increase in income will______ the demand for real money balances and will ____ the interest rate
a.increase ;increase
Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Fed could move the economy more rapidly back to full employment output by:
a.increasing the money supply, but at the cost of permanently higher prices.
An increase in the interest rate:
a.reduces planned investment, because the interest rate is the cost of borrowing to finance investment projects.
if the interest rate is r3 then people will_____ bonds_____and the interest rate will
a.sell ;rise
An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:
b.Upward and to the right.
When bond traders for the Federal Reserve seek to decrease intrest rates thy_ bonds, which shifts the ______ curve to the left.
b.buy ; lm
when the federal reserve increases the money supply , at a given price level the amount of output demanded is _____ and the aggregate demand curve shifts_____.
b.greater; outward
in the is-lm model, the impact of an increase in government purchases in the goods market has ramification in the money market, because the increase in income causes a _____ in money _____.
b.increase; demand
a variable that links the market for goods and services and the market for real money balances in the is-lm model is the:
b.interest rate
Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run and ______ increase(s) in the long run.
b.output; prices
based on the graph the equilibrum levels of interest rates and real money balances are:
b.r2 and m2/p2
a decrease in the real money supply, other things being equal will shift the lm curve
b.upward and to the left
in the keynesian cross analysis, if the consumption function is given by c=100+0.6(y-t), and planned investmen is 100, g is 100, and t is 100, then equilibrium is:
c.600
graph question
c.C;B
According to the keynesian-cross analysis, if mpc stands for marginal propensity to consume, then a rise in taxes of T will
c.Decrease equilibrium income by (T)(mpc)/(1-mpc)
If a U.S. corporation sells a product in Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ______ and net capital outflows ______
c.Do not change; do not change
If the real exchange depreciates from 1 japenese good per U.S good to 0.5 japense good per u.s good, then U.S exports______ and U.s imports _____.
c.INcrease ; decrease
when the federal reserve reduces the money supply , at a given price level the amount of output demanded is _____ and the aggregate demand curve shifts_____.
c.Lower ; inward
in the long run, the level of output is determined by the :
c.amounts of capital and labor and available technology.
THe IS and LM curves together generally determine:
c.both income and the interest rate.
one policy response to the U.S economic slowdown of 2001 was to increase money growth. This policy response can be represented in the is-lm model by shifting the ____curve ____to the _____
c.is; right
The money hypothesis suggests that the great depression was caused by a
c.leftward shift in the lm curve
THe LM curve shows combinations of ____ that are consistent with equilibrium in the market for real money balences.
c.the interest rate and level of income
If MPC= 0.75(and there are no income taxes ) when g increases by 100, then the is curve for any given interest rate shifts to the right by:
d. 400
In a small open economy , when forgein governments reduce national saving in their countries, the equilibrium real exchange rate:
d. Falls and net exports rise.
net capital outflow is equal to:
d. National saving minus domestic investment
Holding other factors constant, legislation to cut taxs in an open economy will:
d. Reduce national saving and lead to a trade deficit
In the is-lm model, which two variables are influenced by the interest rate?
d. demand for real money balances and investment spending
If the demand for money increases, but the fed keeps the money supply the same, then in the short run output will
d. fall and in the long run prices will fall.
an increase in the demand for money, at any given income level and level of interest rates, will, within the islm framework, _______ output and ______ interest rates.
d. lower; raise
The aggregate demand curve is the _____ realtionship between the quantity of output demanded and the ____.
d. negative ; price level
An IS curve shows combinations of:
d.interest rates and income that bring equilibrium in the market for goods and services
According to the theory of liquidity preference, the supply of real money balances
d.is fixed
One policy response to the U.S. economic slowdown of 2001 was tax cuts. This policy response can be represented in the IS-LM model by shifting the ______ curve to the ______.
d.is;left
The U.S. recession of 2001 can be explained in part by a declining stock market and terrorist attacks. Both of these shocks can be represented in the IS-LM model by shifting the ______ curve to the ______.
d.is;left
when bond traders for the federal rerve seek to increase interst rates, they ___ bonds , which shifts the ____curve to the left.
d.sell; lm
A decline in the index of supplier deleiveres is typically an indicator of a future _____ in economic producion, and a narrowing of interest rate spread between the 10-year tresury note and a 3 month treasurly bill is typically an indicator of a future ____ in economic production.
d.slowdown: slowdown
the interaction of the is curve and the LM curve together determine
d.the equilibrum level of the interest rate and output
An explanation for the slope of the IS curve is that as the interest rate increaes, the quantity of investment_____, and this shifts the expenditure function _____, thereby decreasing income.
decreasing; downward
Give two examples of macroeconomic variables and microeconomic variables.
The income of your father is a microeconomic variable....... While gross deomestic product (GDP) of your country is a macroeconomic variable. THe money your father saves in the bank is a macroeconomic variable, while the total money in all banks and post offices of your country is a macroeconomic variable.
The economy of miniland has an income of $400, consumption is $200 , government expenditiure is $200, and the tax earning of government is $150. Calculate: Private saving, Public saving, national saving.
Y=400 C=200 T=150 G=200 A. Private saving= y-c-t= 400-200-150=$50 B. Public saving=T-G=150-200=-$50 C. National Savings= private + Public saving= 50+-50= $0
The closed economy of Moneyland has total income of $5000, consumption function is C = 2000 - 30r, investment function I = 1500 - 20r, government spending is $2000, r is nominal interest rate. Inflation is 6 percent. Find the real rate of interest.
Y=C+I+G ; 5000=2000-30r+1500-20r+2000 ; R=10 percent Real interest rate= r-inflation= 10-6= 4 %
Are the terms market clearing and equilibrium one of the same. Explain?
Yes, both represent the same notion: the balance between supply and demand. it is the balancing point at which everything that is produced gets sold and fulfills the entire demand. Thus, if all other things remain constant, then there is no tendency to change the quantity supplied and demanded at this point.
on Two occasions in the 1970s:
a. World oil prices rose rapidly, inflation was high, and the unemployment rate was high
An appreciation of the real exchange rate in a small open economy could be the result of:
a. an increase in government spending.
In a small open economy, if domestic investment exceeds domestic saving, then the extra investment will be financed by:
a. borrowing from abroad
When bond traders for the Federal Reserve seek to decrease interest rates they_bonds, which shifts the ______ curve to the right,
a. buy ;is
in the is-lm model when the federal reserve decreases the money supply, people _____bonds and the interest rate ______, lending to a ______ in investment and income.
a. buy;rises;increase
The version of okun's law studied in chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, okuns law predicts that real GDP would.
a. decrease by 1 percent .
When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:
a. downward and to the left
in the keynesian-cross model, if government purhases increase by 100, then planned expenditures ____ for any given level of income
a. increase by 100
the Is-lm model is generally used:
a. only in the short run
The IS curve curve shifts when any of the following economic variables change except:
a. the interest rate
if the demand function for moeny is M/p=0.5y-100r, then the slope of the lm curve is:
b. 0.005
Variables that a model takes as given are called.
b. Exogenous
Macroeconomic models are used to explain how ____ variables influence___ variables.
b. Exogenous; endogenous
Important characteristics of macroeconomic models include all of the following except:
b. Functional relationships based on controlled experiments.
A country's exports may be written as equal to:
b. GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services.
IN a small open economy with perfect captial mobility, a reduction in the governments budget deficit____ net exports and real exchange rate ___.
b. Increases: depreciates
The best measure of the economic satisfaction of the memebers of a society is:
b. Real GDP
in a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and _____ net capital outflow.
b. Surplus; Negative
In the kenesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy:
b. changes income, which changes consumption, which further changes income
During the financial crisis of 2008-2009, many financial institutional stopped making loans even to creditworthy customers, which could be represented in the is-lm model as an
b. contractionary shift in the IS curve
Expansionary fiscal policy in a large open economy _______ the real interest rate and ________ the real exchange rate
b. increases; increases
Over the busniess cycle, investment spending______ consumption spending.
b. is more volatile than
After the kennedy tax cut in 1964, real GDP :
b. rose and unemployment fell.
The pigou effect
b. suggests that as prices fall and real money balances rise, consumers should feel wealthier and spend more
The slope of the is curve depends on:
b. the interest sensitivity of investment and the marginal propensity to consume
which of the following is an example of demand shock?
b. the introduction and greater availability of credit cards
In a steady state:
b. the number of people finding jobs equals the number of people losing jobs
If consumption is given by c=200+0.79(y-t) and investment is given by i=200-25r, then the formula for the is curve is:
b. y=1600-3t-100r+4g
most economists beleive that prices are:
b.Flexible in the long run but mant are sticky in the short run
If the information technology boom increaes investment demand in a small open economy, then net exports_____ and the real exchange rate________.
c. Decrease; appreciates
A "small" economy is one in which the:
c. Domestic interest rate equals the world interest rate.
In a small open economy, if the government encourages investment, through, say, an investment tax credit, investment:
c. Increases and is financed through an inflow of foreign capital
THe real exchange rate is determined by the equality of:
c. Net capital outflow and the menad for net exports
As the U.S. budget deficit shrank in the 1990s, the increase in U.S. national saving was ______ than the expansionary shift in the U.S. investment function, resulting in a trade ______
c. Weaker;deficit
Short-run fluctuations in output and employment are called:
c. business cycles
in this graph, if firms are producing at level y1, then inventories will___, inducing firms to ____ production
c. fall ; decrease
According to the is-lm model, if congress raises taxes but the fed wants to hold the interest rate constant, then the fed must _______ the money supply.
c. first increase and then decrease
government purchases multiplier indicates how much ______ changes in response to a $1 change in government purchases
c. income
If domestic saving is less than domestic investment, then net exports are______ and net capital outflows are_______.
c. negative; negative
THe intersection of the IS and LM curve determines the values of
c. r and y given g,t,m,and p
building and economic model based on the assumption of a small open economy is useful because
c. this simplifying assumption can assist our understanding and intuition of open economy macroeconomics