Macroeconomics final

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

To decrease the money supply, the Fed can

sell government bonds or increase the discount rate.

. Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income?

141 percent

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

both ABC and JLG

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

$1600.

Whip-It manufactures blenders. In 2009 it had $50,000 of blenders in inventory. In 2010 it sold $300,000 of blenders to consumers and had $40,000 of blenders in inventory. How much did blenders produced by Whip-it add to GDP in 2010?

$290,000

Suppose the MPC is 0.60. Assume there are no crowding out effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

$500 billion and $300 billion

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

. price level ↑ demand for money ↑ equilibrium interest rate ↑ quantity of goods and services demanded ↓

. Suppose the economy is in long-run equilibrium. If there is an income tax cut at the same time that major new sources of oil are discovered in the country, then in the short-run

. real GDP will rise and the price level might rise, fall, or stay the same.

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. The marginal propensity to consume for this economy is

0.64

The money multiplier equals

1/R, where R represents the reserve ratio for all banks in the economy.

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate on the nominal interest rate?

43.75 percent

The BLS reported in 2005 that there were 59.98 million people over age 25 whose highest level of education was a high school degree or equivalent. From this group 36.40 million were employed and 1.93 million were unemployed. About what were the labor-force participation rate and the unemployment rate for this group?

63.9%, 5.0%

There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means that

velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P.

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. For this economy, an initial increase of $500 in government purchases translates into a

$1,390 increase in aggregate demand in the absence of the crowding-out effect.

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. Sue Holloway's 1944 income in 2013 dollars is

$148,909.

. Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. Josh Holloway's 2013 income in 1944 dollars is

$16,923.

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. The multiplier for this economy is

2.78

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500.

A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect.

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

The after-tax real interest rate is the same for all of the above

Which of the following could explain an increase in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

The demand for loanable funds shifted rightward.

If V and M are constant, and Y doubles, the quantity equation implies that the price level

falls to half its original level.

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

selling bonds. This selling would reduce reserves and money supply

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if

the price level is higher than expected making production more profitable

According to classical macroeconomic theory, changes in the money supply affect

the price level, but not real GDP.

The aggregate supply curve is upward sloping in

the short run, but not the long run.

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level

. falls, shifting aggregate supply right.

The money supply increases if

. households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively fewer excess reserves and make more loans.

Giulia says that the future value of $250 saved for one year at 7 percent interest is less than the future value of $250 saved for two years at 5 percent interest. Isabella says that the present value of a $250 payment to be received in one year when the interest rate is 7 percent is less than the value of a $250 payment to be received in two years when the interest rate is 5 percent.

Only Giulia is correct.

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply

A recession is always associated with

declining real GDP

When the money supply increases

interest rates fall and so aggregate demand shifts right.

Tom and Lilly rented a house for $12,000 last year. At the start of this year they bought the house they had been renting directly from the owner for $250,000. This year, they believe they could rent the house out for $12,000, but decide not to and live in it instead. How much does Tom and Lilly's decision to buy the house change GDP?

it does not change GDP

In which of the following cases would the quantity of money demanded be largest?

r=0.03, P=1.3

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. This type of effect on spending illustrates

the multiplier effect.