MacroEconomics Final Study Guide

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

Refer to Figure 33-1. The natural level of output occurs at

Y2

If U.S. net exports are negative, then net capital outflow is

negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

When colonists in Virginia used tobacco as money, their money

was commodity money.

Which of the following actions best illustrates adverse selection?

A person who has narrowly avoided many accidents applies for automobile insurance.

What is the U-4 measure of labor underutilization?

6.9%

The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?

$4,937.5 billion

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 3 percent. The future value of the $500 after 1 year is

$515.00

What was country A's GDP in 2019?

$7,253

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

(eP)/P*

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

2 gallons of Argentinean milk/1 gallon of U.S. milk

If the price level increased from 120 to 144, then what was the inflation rate?

20 percent

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

3 percent

Scenario 34-1. Take the following information as given for a small economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. Refer to Scenario 34-1. The multiplier for this economy is

4.00.

If M = 2,000, P = 2.25, and Y = 6,000, what is velocity?

6.75

What are the GDP deflator and the inflation rate for 1931?

9.16, −10.3

The Microsoft Surface RT is an example of the mishaps which can occur when firms fail to acknowledge:

The Role of Demand Shifters

If a country experiences capital flight, which of the following curves shift right?

The demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.

Scenario 33-2 Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. How is the new long-run equilibrium different from the original one?

The price level is higher and real GDP is the same.

What was the growth rate of real GDP for 1930?

−8.62%. Real GDP is a better gauge of economic well-being than nominal GDP.

What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services people wish to have?

Scarcity

Institutions help economies grow by protecting private property. Which of the following is an example of how ill-defined property rights can lead to an exit of industries:

"Free" Bicycles in Amsterdam

Efficiency Wages were adopted by Walmart to partially reduce costs such as

"inventory shrinkage"

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015. President Hoover's 1931 salary was equivalent to a 2015 salary of about

$1,169,408.

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

$10,000 of money.

Suppose the consumer price index was 184 in Year 1 and 198.17 in Year 1. The nominal interest rate during this period was steady at 5.8 percent. What was the real interest rate during this period?

-1.9 percent

The law of demand states that, other things equal, when the price of a good

Falls, the quantity demanded of the good rises.

Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand?

Net exports would fall which by itself would decrease U.S. aggregate demand.

The "law of one price" states that

a good must sell at the same price at all locations.

Purchasing-power parity theory does not hold at all times because

many goods are not easily transported and the same goods produced in different countries may be imperfect substitutes.

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

Scenario 33-2 Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. In the long run, the change in price expectations created by the stock market boom shifts

short-run aggregate supply left.

Scenario 33-2 Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. Which curve shifts and in which direction?

Aggregate demand shifts right

Scenario 33-2 Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. In the short run what happens to the price level and real GDP?

Both the price level and real GDP rise.

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because the

CPI better reflects the goods and services bought by consumers.

When Russia invaded Ukraine in Mid-2021, foreign investors abruptly exited the countries economy, triggering a depreciation in the Russian Ruble. This is an example of

Capital Flight

The term economists use to describe a situation in which the economy's overall price level is rising is

Inflation

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn.

The problem of "gluts," or the idea that savings means that consumption cannot equal production, was a central debate between David Ricardo and Thomas Malthus. Which of the following economic "laws" argues gluts cannot exist systemically?

Say's Law

Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would happen to the dollar?

It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.

Who is the reason Missouri has two Federal Reserve banks and is deeply despised by your instructor?

James Reed

Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States?

Make it fall which by itself would decrease U.S. aggregate demand.

What must be given up to obtain an item is called

Opportunity Cost

Refer to Figure 33-6. Suppose the economy starts at Z. Stagflation would be consistent with the move to

P3 and Y1

Scenario 33-2 Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. In the long run, what happens to the expected price level and what impact does this have on wage bargaining?

The expected price level rises. New wage contracts are negotiated at higher wages.

Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption?

The purchase of a new house

Which of the following relationships is nicknamed the "twin deficits"?

The relationship between budget deficit and trade deficit.

A group of buyers and sellers of a particular good or service is called

A Market

Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

A movement from Point B to Point F

Which of the following demonstrates human capital and physical capital in that order?

For a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen

Which of the following economists is associated with the monetarist explanation for the origins of the Great Depression (1929-1933)?

Milton Friedman

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

Price would fall, and the effect on quantity would be ambiguous.

Which of the following cases demonstrates the efficient markets hypothesis?

The drop in Morton Thiokol stock shortly after the Challenger Explosion

Which of the following events would explain the shift of the production possibilities frontier from A to B?

The economy experienced a technological advance in the production of books.

Which of the following is not a determinant of the long-run level of real GDP?

The price level

The natural rate of unemployment is the

amount of unemployment that the economy normally experiences.

When conducting an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply

The curve becomes flatter as the amount of capital per worker increases because of

diminishing returns to capital.

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). The open-economy macroeconomic model predicts that this should have

raised Argentinean real interest rates and caused the Argentinean currency to depreciate.

Refer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would

shift the AD curve to the left.

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

the equilibrium interest rate increases.

For a risk averse person,

the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.

Wealth is redistributed from creditors to debtors when inflation is

unexpectedly high.