Macroeconomics Final

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. Its current level of total reserves is _____. If the reserve requirement is increased to 25%, the new level of excess reserves would be _____.

$12,000; $2,000

Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals

0.2

If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____.

4; equal to or less than 4

If the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be?

55+5 60 million

_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy. A. Increasing; increasing; lowering B. Reducing; increasing; raising C. Reducing; increasing; lowering D. Increasing; reducing; raising

A. Increasing; increasing; lowering

Which list represents monetary policy actions that are consistent with one another? A. buy government bonds, lower reserve requirements, lower the discount rate B. sell government bonds, raise reserve requirements, lower the discount rate C. sell government bonds, lower reserve requirements, raise the discount rate D. buy government bonds, raise reserve requirements, raise the discount rate

A. buy government bonds, lower reserve requirements, lower the discount rate

Which event will shift the aggregate demand curve to the right? A. decrease in taxes B. decrease in military spending C. increase in household debt D. catastrophic hurricane hits the northeastern United States

A. decrease in taxes

Under which condition would the Fed be most likely to engage in its role as the lender of last resort? A. if a lack of confidence in the financial system causes savers to withdraw money from banks B. when record amounts of student loans are paid back before interest rates rise C. when a stock market crash causes people to sell their stocks and purchase bank CDs instead D. when throngs of borrowers apply for loans as the housing market picks up

A. if a lack of confidence in the financial system causes savers to withdraw money from banks

A production function says output per worker equals Axf(L|L,K|L,H|L,N|L) and tells us all of these EXCEPT _____ will lead to a better standard of living A. more people B. more human capital C. increases in capital D. More natural resources

A. more people

What change is most likely to increase wages the MOST in a country? A. the capital-to-labor ratio rises by 2% B. Since the growth rate is 2% in all listed situations, wages would increase equally in all of them C. Drainage of swampy land allows 2% more land to be farmed D. The labor force grows by 2%

A. the capital-to-labor ratio rises by 2%

According to the table which country will have the Lowest GDP per capita in 23.67 years ? Ecoland Real GDP Per Capita, Current year: 10,000 Growth rate real GDP per capita: 12% Macia Real GDP Per Capita, Current year: 22,000 Growth rate real GDP per capita: 6% Nomia Real GDP Per Capita, Current year: 28,000 Growth rate real GDP per capita: 3% Coland Real GDP Per Capita, Current year: 30,000 Growth rate real GDP per capita: 3%

A=P(1+r/100)^t A=28000((1+.03)/100)^23.67

If your goal was to have the largest amount of money in your bank account was possible in two years, which option would you choose ? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years) A. beginning deposit of $930, earning 8% per year B. beginning deposit of $950, earning 5% per year C. beginning deposit of $1000, earning 4% per year D. beginning deposit of $1,010, earning 3% per year

Amount at the end of 2 years = P*(1+r/100)^t = 930x((1+8%)/100)^2

Esteban's annual salary is $80,000, of which he saved $20,000. When he received his bonus of $10,000, he spent $8,000 on home renovations and saved the remaining $2,000. Which statement is TRUE? A. Esteban's average propensity to consume decreased. B. Esteban's average propensity to consume increased. C. Esteban's average propensity to consume cannot be calculated. D. Esteban's average propensity to consume stayed the same.

B. Esteban's average propensity to consume increased. APC = C/Y situation 1 =(80,000-20,000)/(80,000)= 0.75 Situation 2 = (8000)/(10000)= 0.8 APC has increased

Which of these provides an accurate description regarding the slope of the short-run aggregate supply curve? A. The negative slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. B. The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. C. The negative slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. D. The positive slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are.

B. The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

The U.S. economy is currently experiencing high unemployment and low inflation. To lessen the unemployment problem, the Federal Reserve could A. raise the reserve requirement, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. B. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. C. lower the discount rate, thereby enabling banks to increase liquidity, lend more money, decrease the money supply, stimulate spending, and create jobs. D. sell bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

B. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

A breakthrough in solar energy research that halves the cost of electricity will A. cause the aggregate supply curve to become vertical. B. shift the aggregate supply curve to the right. C. shift the aggregate supply curve to the left. D. have no effect on the aggregate supply curve.

B. shift the aggregate supply curve to the right.

In which situation. is a country LEAST likely to be producing on its production possibilities frontier curve? A. There are legal penalties for breaking contract B. There are legal disputes over the ownership of 15% of the factory buildings in the country C. The land is dry ands low productivity in farming D. The average education level is of the fourth grade

B. there are legal disputes over ownership of 15% of the factory

If an economy is growing at 10%, how long will it take for $1,000 to turn into $4,000?

By rule of 70 economy = 70/growth rate =70/10 = 7years 7*2 = 14 years

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium? A. Short-run aggregate supply falls causing unemployment; with less output, investment falls, leading to a reduction in long-run aggregate supply and a new long-run equilibrium with lower output and higher prices. B. Aggregate demand falls causing prices to fall; at lower prices, aggregate demand then rises back to its original level, leading to a return to the original price and output levels. C. Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output. D. Short-run aggregate supply falls; then aggregate demand falls, leading to a new long-run equilibrium with lower prices and lower output.

C. Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output

Which statement is not correct A. Discouraged workers are no classified a unemployed B. Discouraged workers are considered part of the leisure class C. Discouraged workers are considered underemployed D. Discouraged workers have stopped actively seeking work

C. Discouraged workers are considered under employed

Which situation indicates that total output in a country has grown the most when the starting output is the same in all situations? A. output per worker grows by 4% while the labor force grows by 12% B. Output per worker grows by 11% while the labor force remains constant C. Output per worker grows by 10% while the labor force grows by 10% D. Output per worker remains constant while the labor force grows by 11%

C. Output per worker grows by 10% while the labor force grows by 10%

An economy is expected to produce higher profits for business owners at the same time that the country's stock market surges. What changes can be expected in the country's market for loanable funds? A. decreases in both demand and supply B. a decrease in demand and an increase in supply C. an increase in demand and a decrease in supply D. increases in both demand and supply

C. an increase in demand and a decrease in supply

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier. A. aggregate spending; larger B. disposable income; larger C. disposable income; smaller D. aggregate spending; smaller

C. disposable income; smaller

Assume taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to

Change in income = -C/(1-C) * Change in T C= 0.75 Change in T = 0.75*200 =-.75/(1-.75)*200 =-0.75/0.25*200 =-3*200 =-600

A bond has a face value of $1,000 and an annual interest payment of $44. What is its coupon rate, and what is its yield if it is sold for $1,100 in the secondary market?

Coupon rate = 44 = 1000* C = 4.4% 1,100 = 1000(1+r) YTM = 4.0%

Which statement regarding discretionary and mandatory spending is correct? A. Mandatory spending programs include national defense, income security, and education. B. Discretionary spending is authorized by permanent laws. C. Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s. D. Mandatory spending may act as an automatic stabilizing force in the macro economy.

D. Mandatory spending may act as an automatic stabilizing force in the macro economy.

Which event would NOT be included in total factor productivity measurements ? A. An earthquake that disrupts a country's production for several weeks B. A severe military conflict that restricts daily movements of labor and capital C. an unexpected breakthrough in GPS technology that enhances transportation D. A large investment in physical capital that makes labor more productive

D. a large investment in physical capital that makes labor more productive

which assumption is NOT a problem related to using the consumer price index (CPI) to accurately state the rate of inflation ? A. the CPI assumes that people do not substitute goods B. the CPI does not include new products C. the CPI does not account for quality changes D. The CPI does not deal with producer price

D. the CPI does not deal with producer prices

What is a difference between the typical structure of a retirement savings account (401(k)) and an individual retirement arrangement (IRA)?

Employers often match 401(k) contributions, but they do not match IRA contributions.

Compared with stocks, bonds tend to reward investors with a higher average return on investment over the long run.

False

The consumer Price index measures private goods as well as public goods

False

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 remains in the checking accounts of the loan recipients. The bank has $50,000 cash on hand, and the reserve requirement is 25%. The reserve ratio for this bank is _____, and it _____ meeting its reserve requirement.

Given deposit= 50000 loan = 49000 reserve requirement = 25% 53.76%; is

Which statement(s) is/are TRUE regarding the paradox of thrift? I. People intend to save less but their actions actually lead to an increase in savings. II. For the paradox of thrift to occur, investment must be positively related to income. III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings.

II only

unanticipated ____ is detrimental to economic growth.

Inflation or deflation

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap.

Inflationary b/c real GDP > potential GDP =500-750 = -250 =1-.06 =.04 spending multiplier =1/.04 =.25 =-250/2.5 = -100 inflationary, decrease, $100

(Figure: Simple Keynesian Model) In the figure, suppose investment has increased from AE = C + I0 to AE = C + I1. The multiplier equals

Multiplier = (Change in equilibrium income /Change in AE) Here, When Y= 0, and I= 0, AE= 300 and equilibrium GDP= 700 And When investment has increased from I0 to I1. Then we can see, when Y=0, I= 0 , AE1 = $400 and equilibrium GDP= $950 Multiplier= (950-700)/(400-300)= 2.5.

If a one-year bond with a face value of $1,000 is sold for $950, what is the bond's approximate yield?

P= FV/(1+r) P = 950 FV = 1000 950=1000/(1+R) r = 5.26

Last year the consumer price index was 115 while the consumer price index for this year is 125. the rate fo inflation was ?

Rate of inflation = (CPI in year 2 - CPI in year 1)/(CPI in year 1) = (125-115)/115 = .087 or 8.7%

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n)______ in spending equal to ______ is needed to close the gap

Recessionary bc/ real GDP < potential GDP =1,000-750 = 250 MPS = 1-.06 = 0.4 Spending multiplier = 1/0.4 = 2.5 250/2.5 = $100 recessionary, increase, $100

(Figure: Simple Keynesian Model) In the figure, equilibrium savings equals _____ when investment is at AE = C + I0, and _____ when investment is at AE = C + I1.

The investment is a vertical distance between C and C+I0 for AE=C+I0so it is $100and for AE=C+I1 investment is $200 which is vertical distance between C and C+I1. $100,200

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. Which statement is TRUE?

The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals _____, the MPC equals _____, and the APC equals _____.

The total spending=$380 Income=$300 Saving=income-spending =300-380=-80 MPC=change in consumption/change in income =(500-380)/(500-300)=120/200=0.6APC=consumption/income =380/300=1.27 Answer: -$80; 0.6; 1.27

A rise in real GDP is associated with increased employment.

True

If an employer uses an escalator clause to determine an employee's raise each year, in an inflationary environment, the employer is more likely than the employee to want to use the personal consumption expenditures price index in this clause

True

If foreign countries abandoned the use of the dollar as their only form of legal currency, the U.S. money multiplier would likely increase.

True

Money leakages make it more difficult to use monetary policy to pull the economy out of a recession.

True

Thomas Malthus believed that the geometric growth of the population and the arithmetic growth of the food supply would never be altered

True

To convert a nominal value to a real value in dollar terms, the base year index must be set at 10

True

Suppose the town of Treeville has a population of 200, of which 120 are in the labor force. Of those in the labor force, 100 are employed and 20 are unemployed. The unemployment rate in Treeville is ?

Unemployment rate = (# of people unemployed) /(labor Force) = (20)/(120) = 17%

Which of these would NOT shift the investment demand schedule? A. a change in operating costs B. a change in expectations C. a change in interest rates D. a change in technology

a change interest rates

Which of these would likely cause the market for loanable funds to change as shown in the following figure?

a decrease in average incomes

The demand for loanable funds is downward sloping because

as interest rates fall, businesses find more projects to be profitable and thus want to borrow more.

What are the determinants of short-run aggregate supply?

changes in input prices, taxes, and business and inflationary expectations

When a perpetual bond with a face value of $1,000 is issued, general interest rates are 3%, so the annual interest payment is _____. After the bond is issued, market interest rates rise to 4%, which forces the price of the bond to _____ to _____.

coupon payment = 1000* .30 = $30 fall =$30/(1.04)^1 + (1030)/(1.04)^2

Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the _____ effect.

crowding-out

______ unemployment is the result of changes in the business cycle

cyclical

If the economy shown in the figure begins at point C, an increase in consumer confidence leads to what changes in the short run?

demand-pull inflation

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction, the supply of money is

directly increased by $4 million and has the potential to be increased by another $12 million.

Suppose three years ago the nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing...

disinflation

In September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the _____ lag.

information

Bonds are considered to be _____ than stocks because _____.

less risky; bondholders are less affected by a firm's bankruptcy

Assume the economy is currently experiencing aggregate expenditures greater than aggregate income. The economy will move toward equilibrium as businesses begin to produce _____, leading to _____ employment and _____ income.

more, more, more

Bond prices and their yields are _____ because the bond's face value and _____are fixed, forcing its _____ to change in response to changing market conditions.

negatively related; coupon payment; sales price

One argument against using taxation to pay off the public debt is that it will redistribute wealth from

poorer people who do not own bonds to richer bondholders.

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right, increase

Population: 500 Number Employed: 300 Number Unemployed: 50 What is the labor force of the economy?

the labor force is the number of people who are employed and unemployed 300+50 = 350

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. The movement from point a to point b is due to

workers and suppliers adjusting their expectations to higher price levels.