Macroeconomics Final
If C = $120 billion + .75(Y), break-even income (Y) is equal to:
$480 billion.
Use the table below to answer the question. Between year 2 and year 3, prices rose by approximately:
3.40 percent.
Which of the following would best explain an increase in the demand for jeans?
An increase in the number of schools that allow students to wear jeans
Which of the following will cause a decrease in the demand for batteries?
An increase in the price of digital cameras, a complement for batteries
Use the table below to answer the question. Disposable Income (Yd) | Consumption (C) $200 | $300 $400 | $450 The algebraic form of this consumption function is:
C = $150 + 0.75(Yd).
Which of the following is an example of capital as a factor of production?
Camera equipment used by a photographer employed by a magazine
If the economy represented by the graph below is on PPF2, production is efficient at point(s):
D and E.
Which of the following is an example of automatic, contractionary fiscal policy?
Higher personal income tax payments that occur when an economic expansion causes incomes to rise
"The government should take action to decrease total spending in the economy when the inflation rate rises" is an example of:
a normative macroeconomic statement.
Economic growth is illustrated by:
a rightward shift of the long-run aggregate supply curve.
Inflation is:
an increase in the average level of prices of goods and services over time.
The part of consumption spending that is independent of disposable income is called:
autonomous consumption.
The largest source of revenue for the federal government in the U.S. is the:
personal income tax.
Ceteris paribus, as the price of a bond decreases, its yield:
rises.
Official unemployment statistics are more likely to understate the true unemployment problem when:
underemployed workers are counted among the employed and there are discouraged workers.
Assume C = $600 billion + 0.9[Y - T], I = $850 billion, G = $500 billion, and T = $500 billion. Using the simple Keynesian model, equilibrium is at income is equal to:
$15,000 billion
Based on the information below, if the required-reserve ratio is 20 percent, this bank is able to increase lending by a maximum of:
$20,000.
Use the table below to answer the question. If John's nominal salary in year 3 is $45,000, his real salary in year 1 dollars is approximately:
$42,253.
Assume the required reserve ratio is 20 percent. Based on the information in the T-Account for the banking system shown below, if banks continue making loans until excess reserves equal zero and there are no currency leakages, checkable deposits will grow to:
$475 billion.
Assume the required reserve ratio is 20 percent. Based on the information in the T-Account for the banking system shown below, required reserves equal _____ and excess reserves equal _____.
$80 billion; $15 billion
Based on the information below, if the required-reserve ratio is 20 percent, required reserves are equal to:
$80,000.
If, in a given year, nominal GDP is $11,850 billion and the GDP Deflator is 120, then real GDP is equal to:
$9,875 billion.
If C = $250 + 0.75[Y - T], the MPS is _____, the government spending multiplier is _____, and the tax multiplier is _____.
0.25; 4; -3
Use the data below to answer the question. Disposable Income | Consumption $30,000 | $28,000 $40,000 | $36,000 The marginal propensity to save (MPS) is equal to _________ , and the marginal propensity to consume (MPC) is equal to ___________.
0.2; 0.8
If the actual unemployment rate is less than the natural unemployment rate:
an inflationary gap exists and wages are likely to rise.
The type of unemployment associated with recessions is:
cyclical unemployment.
A fiscal policy solution to this problem might include:
increasing government spending.
When there is a liquidity trap:
the Fed is no longer able to reduce interest rates to boost spending.
Assuming specialization and free trade and using the data in the previous question, if Country A imports 40 TV's and exports 80 wheat, consumption in Country A will be:
120 wheat and 40 TV's
Use the table below to answer the question. The number of workers in the labor force in Year 1 is _______, and the unemployment rate is approximately ______ percent.
154 million; 5.8
Suppose the money supply (M) is $10 billion, real GDP (Q) is $20 billion, and the price level (P) = 2.0. Then, according to the equation of exchange, the velocity of money (V) is:
4
If the nominal rate of interest is 10% and the expected inflation rate is 4%, then the expected real rate of interest is:
6%.
Which of the following best describes an individual that is frictionally unemployed?
A new college graduate who is currently without a job but who has had several interviews that promise to result in job offers
The expenditure approach to calculating GDP is represented by the equation:
GDP = C + I + G + (EX - IM).
Suppose the economy is initially at full-employment equilibrium. Which of the following events could cause a recessionary gap, ceteris paribus?
Households save more at every level of disposable income
If equilibrium real GDP falls short of full-employment (natural) real GDP by $60 million when the MPC = 0.75, which of the following would eliminate the recessionary gap that exists according to the Keynesian model?
Increase G by $15 million
Which of the following best describes the Keynesian perspective on how expansionary monetary policy affects the economy?
Lower interest rates, higher investment and consumption expenditures, and higher real GDP.
Two economists, Lynch and Wyatt, are discussing the currently high unemployment rate. Lynch says that something ought to be done quickly since the economy may not be able to restore itself to full employment. Wyatt says that it is better to take a "hands-off" approach. Which of the following is most likely to be true?
Lynch is a Keynesian economist and Wyatt is a Classical economist.
If Mrs. Miller moves $3,000 from her checking account into her savings account:
M1 decreases, M2 stays the same, and the system becomes less liquid.
Assume the government cuts taxes by $250 billion. If the MPC is 0.8, what is the maximum potential impact on real GDP according to the simple Keynesian model?
Real GDP increases by $1,000 billion
Which of the following is the best approach for the Federal Reserve to eliminate the gap shown in the graph below?
The Fed should sell bonds in the open market and raise the discount rate.
Which of the following would be included in the 2015 GDP estimate for the U.S.?
The value of bicycles produced in the U.S. in 2015 and purchased by consumers in Mexico in 2015.
When tax receipts are less than government expenditure during a single year, the result is:
a budget deficit.
Ceteris paribus, the aggregate demand curve will shift to the left as a result of:
a decrease in household wealth.
Prior to the current global pandemic, U.S. banks were required to hold:
a fraction of total deposits on reserve.
Based on the graph below, a price of $7 per rose results in:
a surplus of 20 roses.
Technological improvements that reduce the cost of manufacturing smaller personal computers would be expected to cause:
an increase in supply and a decrease in equilibrium price.
Ceteris paribus, a decrease in the supply of cell phones was most likely caused by:
an increase in the cost of producing cell phones.
In the long run, continued increases in aggregate demand not matched by similar increases in aggregate supply will cause:
an increase in the price level.
According to the law of demand, a decrease in the price of gasoline leads to:
an increase in the quantity demanded of gasoline, ceteris paribus.
The most frequently used method of pursuing expansionary monetary policy is for the Fed to:
buy government bonds in the open market.
The economic argument supporting free trade is based on the principle of:
comparative advantage.
A linear production possibilities frontier indicates _____ opportunity cost, while a bowed-out production possibilities frontier indicates _____ opportunity cost due to fact that resources _____ well suited to all types of production.
constant; increasing; are not
The demand for restaurant meals will most likely increase if:
consumers enjoy dining out more than they enjoy dining at home.
_______________________ involves decreases in government spending and increases in taxes, while ______________ involves increases in government spending and decreases in taxes.
contractionary fiscal policy; expansionary fiscal policy
Real GDP measures the quantity of goods and services produced in the:
current year and valued at base prices.
According to Monetarists, the most important determinant of inflation in U.S. history has been:
decisions by the Fed to allow the money supply to grow too quickly.
When there is scarcity, wants and needs exceed the resources available to satisfy them. Therefore:
decisions must be made about how to allocate limited resources among competing uses.
Ceteris paribus, an increase in the supply of a product leads to a(n) _____ in the equilibrium price of the produce and a(n) _____ in the equilibrium quantity of the product.
decrease; increase
Ceteris paribus, if personal taxes are increased, consumer spending will _____ and the aggregate demand curve will shift to the _____.
decrease; left
In the circular flow model, the household sector _____ goods and services in _____ markets.
demands; product
Banks pay the _____ rate when they borrow reserves from the Fed. Banks pay the _____ rate when they borrow reserves from other banks.
discount; federal funds
Suppose Congress believes that the economy is entering a recession and approves a budget that includes increased overall government spending (with no corresponding increase in taxes) in order to stimulate aggregate demand. This is an example of:
discretionary, expansionary fiscal policy.
In the simple Keynesian model, saving depends on _______________ and consumer spending depends on ___________________.
disposable income; disposable income
When the economy's rate of unemployment is higher than the natural rate, this creates:
downward pressure on wages to eliminate the surplus in the labor market.
Macroeconomics focuses on:
economic aggregates, such as unemployment, inflation, and economic growth.
If cotton clothing becomes more popular at the same time that a hurricane destroys a portion of the cotton crop, then, in the market for cotton clothing (ceteris paribus):
equilibrium price will increase but the change in equilibrium quantity cannot be determined from the information given.
Assuming that because an increase in government spending on health care is beneficial to some people in the economy it must necessarily be beneficial to all people in the economy is an example of the:
fallacy of composition.
The major economic policy goals of most industrialized nations are:
full employment, price stability, and economic growth.
Market economies are characterized by all of the following except:
government direction of market activity.
An adverse supply shock that shifts SRAS to the left results in a:
higher price level at a lower level of real GDP.
Assume C = $600 billion + 0.9[Y - T], I = $850 billion, G = $500 billion, and T = $500 billion. Using the simple Keynesian model, ceteris paribus, if government spending increases from $500 billion to $600 billion, equilibrium income will eventually:
increase by $1,000 billion.
If the required-reserve ratio is 10 percent and the Fed buys $25 million worth of government bonds, the maximum potential change in the money supply will be a(n):
increase of $250 million.
ABC manufacturing can produce either widgets or gadgets; a decrease in the price of gadgets would therefore be expected to cause this firm to:
increase the supply of widgets.
When the Fed lowers the required reserve ratio, the excess reserves available in the banking system:
increase, causing an increase in the availability of bank credit.
In Keynesian theory, if the marginal propensity to consume is 0.90 and government spending is increased by $50 billion, then real income (GDP) will ______ by a maximum of_______ billion.
increase; $500
The Laffer curve suggests that:
increasing marginal tax rates may actually reduce tax revenues.
All of the following are functions of the Federal Reserve District Banks except:
insuring household bank deposits.
The ceteris paribus assumption is used to:
isolate the relationship between two variables by holding other influences on the relationship constant.
Compared to barter, the use of money makes transactions ______ time-consuming, thus ______ transactions costs.
less; reducing
Suppose the Board of Governors has determined that increased consumption and investment spending would improve the economy's performance. To accomplish this goal, they would most likely pursue policies that promote:
lower interest rates and an expansion of bank lending activity.
Assuming the short-run aggregate supply curve is upward sloping, an increase in short-run aggregate supply, while aggregate demand remains unchanged, results in a __________ price level, ____________ output (real GDP) and ___________ unemployment.
lower; higher; lower
The vertical long-run aggregate supply curve implies that:
natural or full-employment real GDP does not depend on the price level in the long run.
If the value of exports exceeds the value of imports In a given year, then:
net exports are positive and there is a trade surplus.
Since the U.S. government has decreed that U.S. currency is legal tender:
people are more likely to accept the dollar as a medium of exchange.
The Classical model is based on the assumption that:
prices, wages, and interest rates are flexible.
Keynes argued that:
recessions (downtowns) result from insufficient aggregate demand.
Estimated GDP:
reflects the value added at each stage of production only once to avoid double- counting.
Points inside a production possibilities frontier imply that:
resources are being used inefficiently or are unemployed.
In the production possibilities model, economic growth causes the frontier to:
shift outward.
Suppose the restaurant owner tells the rose seller that she cannot charge a price higher than $4 per rose. Based on the graph below, the $4 per rose price limit would result in a _____ of _____ roses.
shortage; 10
Saving coins to build up a vacation fund represents money functioning as a:
store of value.
An auto worker whose skills are obsolete, leaving the worker without adequate skills to fill his/her job is _______________ unemployed.
structurally
The "liquidity" of an asset refers to:
the ease with which the asset may be converted into a medium of exchange without loss of value.
If government spending financed by borrowing causes crowding out, then:
the economy will likely grow at a slower rate due to less capital accumulation.
The voting members of the Federal Open Market Committee (FOMC) include:
the seven members of the Board of Governors, the president of the New York Federal Reserve District Bank, and four Federal Reserve District Bank presidents on a rotating basis.
Officially, individuals who are not currently working are classified as unemployed if:
they are willing and able to work and are actively seeking employment.
Gross Domestic Product measures the:
total market value of all final goods and services produced within the U.S.
Monetarists argue that increasing the growth rate of the money supply will:
ultimately increase the price level in the long run and have no effect on real GDP.
The essence of the Keynesian theory of unemployment is that:
unemployment results from inadequate demand for goods and services throughout the economy.
