Macroeconomics Final

An initial decrease in a bank's reserves will decrease checkable deposits

by an amount greater than the decrease in reserves

The new​ short-run equilibrium will be where

the new aggregate demand curve intersects the original​ short-run aggregate supply curve on the original​ long-run aggregate supply curve

Technological progress is affected by ​(check all that​ apply)

-entrepreneurship -new software developments -private property rights -investment in capital

The unemployment rate

shows the percentage of the labor force that is considered unemployed.

The Phillips curve exhibits

the relationship between the unemployment and the inflation rates

Congress broadened the​ Fed's responsibility since

the 1930s as a result of the Great Depression

​If, in the long​ run, real GDP returns to its potential​ level, then in the long​ run,

the Phillips curve is vertical

The cyclically adjusted budget deficit is the deficit in the federal government's budget if

the economy were at potential GDP

Suppose the reserve requirement is 5%. What is the effect on total checkable deposits in the economy if bank reserves increase by ​$60 billion?

$1,200 billion increase

Situation 1 will be _____1._________ Situation 2 because the ___2.___ is lower Now suppose you are JPMorgan​ Chase, and you are making car loans. Which situation above would you now​ prefer? JPMorgan Chase would prefer__________

1. better than 2. real interest rate JPMorgan Chase would prefer Situation 2

A shortage is the amount by which the ______ exceeds the _______

1. quantity demanded 2. quantity supplied

3 3 x (4+1)=

15

If the money supply is growing at a rate of 4 percent per​ year, real GDP​ (real output) is growing at a rate of 2 percent per​ year, and velocity is​ constant, what will the inflation rate​ be?

2%

Consider the figure on the right. It shows growth rates in real GDP per hour worked in the United States for various periods from 1900 onward. According to the​ figure, economic growth​ (as measured by growth in real GDP per hour​ worked) in the United States was slowest during the period from

2006 to 2016

There are​ ________ members of the Board of​ Governors, who the President of the United States appoints to​ ________. One of the Board members is appointed Chairman for​ ________.

7; 14-year nonrenewable​ terms; a​ 4-year renewable term

If the government increases expenditure without raising​ taxes, this will A. increase the budget deficit and require the government to borrow additional funds B. cause the interest rate to​ increase, thereby, reducing private investment and crowding out the private sector C. cause a decrease in the domestic exchange rate which will increase exports and decrease imports D. All of the above E. A and B only

A & B only

Which of the following is an example of an expansionary fiscal​ policy?

A decrease in taxes

What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and​ 2010?

Both real and nominal average hourly earnings increased.

What is fiscal​ policy?

Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives

Consider the choices below. All of these except one truly represent the record of productivity growth in the United States from 1800 to the present. Find the one that does not belong.

GDP per capita fell rapidly between 1900 and 1950.

Why​ doesn't the Phillips curve represent a permanent​ trade-off between unemployment and inflation in the long​ run?

In the long​ run, aggregate supply is vertical

What changes should they make if they decide a contractionary fiscal policy is​ necessary?

In this​ case, Congress and the president should enact policies that decrease government spending and increase taxes

The Federal Reserve uses two definitions of the money​ supply, M1 and​ M2, because

M1 is a narrow definition focusing more on​ liquidity, whereas M2 is a broader definition of the money supply

Imagine a graph that shows a situation in which the economy was in equilibrium at potential GDP​ (at point​ A) when the demand for housing sharply declined. Question 1: What actions can Congress and the president take to move the economy back to potential​ GDP? Question 2: As a result of the​ government's actions, the Question 3: The new equilibrium will be

Question 1: Increase government spending or decrease taxes Question 2: aggregate demand curve will shift right Question 3: where the new aggregate demand curve intersects the original​ short-run aggregate supply​ curve, on the​ long-run aggregate supply curve

Question 1: An increase in interest rates affects aggregate demand by Question 2: As the interest rate​ increases,

Question 1: shifting the aggregate demand curve to the​ left, reducing real GDP and lowering the price level Question 2: consumption, investment, and net exports​ decrease; aggregate demand decreases

Which of the following statements is​ correct? a. The relationship between two variables is nonlinear whether it is represented by a straight line or by a curved line b. The relationship between two variables is linear when it is represented by a curved line and nonlinear when it is represented by a straight line. c.The relationship between two variables is linear when it is represented by a straight line and nonlinear when it is represented by a curved line d.The relationship between two variables is linear whether it is represented by a straight line or by a curved line

The relationship between two variables is linear when it is represented by a straight line and nonlinear when it is represented by a curved line

The figure shows how growth rates of real GDP per capita for the entire world have changed over long periods. Based on the data from the figure which one of the following statements is​ false?

The smallest acceleration in growth occurred during the twentieth century as the average annual growth rate increased from 1.3 percent per year to 2.3 percent per year.

The prevalence of​ Alzheimer's dementia is very high among residents living in nursing homes. A student concludes that it is likely that living in a nursing home causes​ Alzheimer's dementia. What is the flaw in the​ student's reasoning?

The student is drawing a false​ conclusion; he is making the error of reverse causality

Have poor countries been catching up to rich​ countries?

There has been​ catch-up by some poor but industrialized countries.

Why does a​ $1 increase in government purchases lead to more than a​ $1 increase in income and​ spending?

Through the government purchases​ multiplier, the​ $1 increase in government spending will lead to an increase in aggregate demand and national​ income, which will lead to an increase in induced spending

The period between the high point of economic activity and the following low point is called

a recession.

The low point of economic activity is called

a trough

If actual inflation is higher than expected​ inflation, the

actual real wage is less than the expected real​ wage: unemployment falls

The stimulus package will shift the __________________ curve to the _______________

aggregate demand, right

A​ country's rate of economic growth is important because

an economy that grows too slowly fails to raise the living standards of its citizens.

The period between the low point of economic activity and the following high point is called

an expansion

Without the stimulus​ package, potential GDP is ________________ equilibrium real GDP

greater than

The diagram to the right is an example of

a​ time-series graph

To increase the money​ supply, the FOMC directs the trading​ desk, located at the Federal Reserve Bank of New​ York, to

buy U.S. Treasury securities from the public

Long-run growth in GDP is determined by

capital, labor​ productivity, and technology

Consider the per-worker production function to the right. Equal increases in the quantity of capital per hour worked lead to _____________ increases in output per hour worked

diminshing

The​ short-run Phillips curve will be

downward slopping

Purchases of which types of goods are business cycles most likely to​ affect?

durable goods

Most of the poor countries experience slow growth because of all the following reasons except

excellent public health and education

Since nominal incomes increase with​ inflation,

expected inflation does not affect the purchasing power of the average consumer

The U.S. dollar can best be described as

fiat money

Technological change is more important to​ long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through

foreign direct investment

The government policy that does not increase economic growth is

foreign trade policy that favors imposing a high tariff on imported​ high-tech goods

Property rights have been determined to be a major factor that helps countries sustain economic growth. Governments can change laws and policies in order to give individuals and firms more freedom. By doing​ so, government can help promote growth because greater property rights

give entrepreneurs more incentive to take risks that create new​ products, ideas, and more technology

Automatic stabilizers are

government spending and taxes that automatically increase or decrease along with the business cycle

Government unemployment insurance tends to

increase the unemployment rate by lowering the opportunity cost of job search.

As a result of the fiscal​ policy, real GDP

increases

Huggies diapers. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.

less than

McDonald's Big Macs. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.

less than

As a result of crowding out in the short​ run, the effect on real GDP of an increase in government spending is often

less than the increase in government spending

The economic growth model predicts that the

level of per capita GDP in poor countries will increase faster than rich countries and the poor nations will catch up with the rich nations.

Why is the Fed sometimes said to have a​ "dual mandate"? 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

Technological change _______________ for economic growth than additional capital.

more important

Boeing passenger aircraft. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.

more than

Chevron's sales of advanced plastics to be used in automobile manufacturing. Production of this good is likely to fluctuate ____________ fluctuations of real GDP during the business cycle.

more than

Ford​ F-150 trucks. Production of this good is likely to fluctuate _____________ fluctuations of real GDP during the business cycle.

more than

There are innings in a typical baseball game

nine

In the diagram to the​ right, the curve labeled​ "S" is apparently​ _____, while the curve labeled​ "D" is apparently​ _____.

nonlinear; linear

The relationship between two variables is positive when​ ________, and the relationship between two variables is negative when​ ________.

one variable increases and the other​ increases; one variable increases and the other decreases

The high point of economic activity is called

peak

The payment of government unemployment insurance reduces the severity of recessions by

preventing a huge drop in income and spending for the unemployed.

The diagram to the right illustrates a very important relationship in economics between two​ variables: the price of a good and the quantity demanded of that good.

price​ (dollars per​ bushel) on the vertical axis and quantity​ (bushels per​ week) on the horizontal axis.

​Long-run economic growth in the United States is best measured using

real GDP per​ capita, which has been trending strongly upwards over the past century

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.

When Congress established the Federal Reserve in​ 1913, its main responsibility was

to make discount loans to banks suffering from large withdrawals by depositors

The sun revolves around the earth.

true

Two examples of automatic stabilizers in the U.S. are

unemployment insurance payments and the progressive income tax system

Automatic stabilizers can reduce the severity of a recession​ because, during a​ recession,

unemployment payments rise and tax collections​ fall, providing more spending ability to push the economy back to full employment

Nominal incomes generally increase with inflation because

when inflation is​ anticipated, average nominal incomes also increase by the same percentage as the rate of inflation

Which of the following shows a negative nonlinear relationship?

y= 34/x

Recessions cause the inflation rate to​ _________, and the unemployment rate to​ _________.

​decrease; increase

It is argued that a policy of tax simplification will result​ in:

A shift from LRAS 1 to LRAS 2 with higher output at a lower price level.

Economists often are interested in percentage change from one period to the next. The percentage rate of change of gross domestic product​ (GDP) is an important macroeconomic variable. If in 2010 GDP was​ $11,150 billion​ dollars, and GDP increased to ​$11 comma 60311,603 billion in​ 2011, what is the growth rate of the U.S. economy in​ 2011?

4.1%

If the money supply is growing at a rate of 4 percent per​ year, real GDP​ (real output) is growing at a rate of 2 percent per​ year, and velocity is growing at 3 percent per year instead of remaining​ constant, what will the inflation rate​ be?

5%

Why do economic growth rates​ matter?

All of the above

As the economy nears the end of an​ expansion, which of the following typically​ occurs?

All of the above occur

The figure in the window on the right shows the​ per-worker production function as a graph. In the​ figure, we measure capital per hour worked along the horizontal axis and real GDP per hour worked along the vertical axis. Letting K stand for​ capital, L stand for​ labor, and Y stand for real​ GDP, real GDP per hour worked is ​Y/L​, and capital per hour worked is ​K/L. The curve represents the production function. Use the figures to help determine which one of the following statements is​ true:

An increase in capital per hour worked from​ $20,000 to​ $30,000 increases real GDP per hour worked from​ $200 to​ $350.

The economic definition of money​ is

Any asset that people are generally willing to accept in exchange for goods and services

If Congress and the president decide an expansionary fiscal policy is​ necessary, what changes should they make in government spending or​ taxes?

In this​ case, Congress and the president should enact policies that increase government spending and decrease taxes

The Phillips curve was developed by A.W. Phillips in 1957 and shows the relationship between unemployment and inflation. The​ curve, shown at the​ right, indicates what type of relationship between the two​ variables?

Inverse relationship

Which of the following is included in M2 but not​ M1?

Money market deposit accounts in banks

Strong​ rule-of-law countries grow more rapidly than weak​ rule-of-law countries. What factor will most likely improve economic growth in weak​ rule-of-law countries?

Political reform

Suppose the government decreases taxes. Use the aggregate demand and aggregate supply model to explain the effects of the decrease in taxes on the economy. Question 1: As a result of the tax​ cut, the Question 2: The new​ short-run equilibrium will be

Question 1: aggregate demand curve will shift right Question 2: where the new aggregate demand curve intersects the original​ short-run aggregate supply​ curve, to the right of the​ long-run aggregate supply curve

Question 1: When the Fed conducts an open market​ purchase, the Fed __________ and the money supply _______________ Question 2: As a result of the open market​ purchase, the Question 3: The new equilibrium will be where Question 4: When the Fed conducts an open market​ purchase, the interest rate should

Question 1: buys securities from banks, increases Question 2: Question 3: the new money supply curve intersects the original money demand curve Question 4: decrease

Question 1:Suppose the government reduces the corporate income tax rate. This will increase the return to firms for​ investing, which should _______________ investment and cause _______________ in capital in the long run. Question 2: As a result of the corporate tax​ cut, the​ long-run aggregate supply curve will Question 3:The new​ long-run equilibrium will be Question 4:The​ long-run impact of a reduction in corporate tax rates would be

Question 1: increase, an increase Question 2: shift to the right Question 3: where the aggregate demand curve intersects the new​ long-run aggregate supply curve Question 4: an increase in​ long-run potential output while actually reducing inflation

Question 1: Imagine a graph shows equilibrium in the money market. The equilibrium interest rate is determined at point E where the​ downward-sloping money demand and vertical money supply curves intersect. Suppose the Fed wants to lower the equilibrium interest rate. To lower the equilibrium interest​ rate, the Fed will take actions that will Question 2: The new equilibrium will be

Question 1: shift the money supply curve to the right Question 2: where the new money supply curve intersects the original money demand curve

Question 1: If the Fed believes the economy is about to fall into​ recession, it should Question 2: If the Fed believes the inflation rate is about to​ increase, it should

Question 1: use an expansionary monetary policy to lower the interest rate and shift AD to the right Question 2: use a contractionary monetary policy to increase the interest rate and shift AD to the left

Which one of the following is not one of the monetary policy goals of the​ Fed?

Reduce income inequality

​ ________ is a problem that occurs when someone concludes that a change in variable X caused a change in variable Y​ when, in​ fact, it is a change in variable Y that caused a change in variable X.

Reverse causality

Who is responsible for fiscal​ policy?

The federal government controls fiscal policy

How might the growth rates in the figure be different if they were calculated for real GDP per capita instead of per hour​ worked? ​(Hint:How do you think the number of hours worked per person has changed in the United States since​ 1900?)

The growth rate of real GDP per capita would be higher than the growth rate of real GDP per hour.

Firm​ X, a leading manufacturer of rubber tires in country​ A, caters to almost​ one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon​ Reeds, the CEO of firm​ X, feels that these fluctuations in the business environment are​ short-lived and expects the economy to recover very soon. In spite of the​ recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The​ firm's marketing​ head, Sandra​ Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making​ large-scale investments in the present climate. Which of the following questions is most relevant to answer in order to determine the accuracy of the​ CEO's claim?

What are consumer expectations of future​ growth?

Economics arrives at the conclusion that economic growth will always improve economic​ well-being. Do you​ agree?

​Yes, economic growth increases living​ standards, improves health and​ education, and builds a​ corruption-free society.

By raising the discount​ rate, the Fed leads banks to make​ _________ loans to households and​ firms, which will​ _________ checking account deposits and the money supply.

​fewer; decrease

The three types of unemployment are

​frictional, structural, and cyclical unemploment