UGA Lastrapes ECON 2105E Final
Keynesian macroeconomists recommend ______.
policies that actively offset changes in aggregate demand that bring recession
Monetarist macroeconomists recommend ______.
policies that keep taxes low to avoid disincentive effects that decrease potential GDP
By measuring ______, we can see that the economy of Singapore has caught up to and surpassed the economy of the United States, but that the economy of Mexico has not.
real GDP per person
The main criticisms of RBC theory include all of the following except ______.
real business cycle theory relies too heavily the role of money in the economy to make its predictions
Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant.
real GDP; price level
The price of a bond _____ between 2005 and 2009 because the _____
remained unchanged; nominal interest rate remained unchanged
The federal funds rate is the interest rate at which banks can borrow and lend _____ in the _____ market.
reserves; federal funds
When the quality of a good improves over time and as a result the price rises, the CPI counts the entire price rise as inflation and so overstates inflation.
...
accumulated over a decade, a CPI bias of...
...
come back to 2.3
...
A marginally attached worker is a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past
....
Absolute advantage is when one person (or nation) is more productive than another - needs fewer inputs or takes less time to perform a good or a production task.
.....
A country has been in existence for only two years. In the first year, receipts were $1.0 million and outlays were $1.5 million. In the second year, receipts were $1.5 million and outlays were $2.0 million. At the end of the second year, the government had issued debt worth ______.
1 million
In March 2017, the money price of a carton of milk was $1.76 and the money price of a gallon of gasoline was $2.39. Calculate the relative price of a gallon of gasoline in terms of milk.The relative price of a gallon of gasoline in terms of milk is _______.
1.36 cartons of milk
The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money.
...
The Ricardo-Barro effect eliminates crowding out.
...
The main events that can put a bank under stress include all of the following except ______.
a rise in the federal funds rate
The price of Treasury bills falls and the interest rate rises
...
In 2018, the federal budget has projected _______.
$440 billion budget deficit
The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
...
Real GDP
(current-past)/past x100
nominal interest rate
(interest/amount of loan)x100
7 Desired reserves increase because deposits have increased. 6 Some of the new money is a currency drain. 2 Banks lend unplanned reserves. 5 Some of the new money remains on deposit. 1 Banks have unplanned reserves. 3 The quantity of money increases. 8 Unplanned reserves decrease. 4 New money is used to make payments.
...
A bank's reserves are notes and coins in the bank's vault or in a deposit account at the Federal Reserve.
...
A return to full employment in a business cycle expansion is shown as a movement from inside the PPF to a point on the PPF.
...
At the new equilibrium quantity of labor, the before-tax wage rate rises and the after-tax wage rate falls .
...
Deposits are money, checks are not money, and credit cards are not money.
...
Each additional hour of labor increases real GDP by successively smaller amounts.
...
Each peak unemployment rate in the recessions of 1982, 1990-1991, and 2001 was lower than the previous one.
...
Funds from household saving, the government budget surplus, and the rest of the world flow through financial markets and institutions to firms who borrow the funds for investment.
...
In June 2019, the federal funds rate was 5.38 percent
...
Modern-day Malthusians point to global warming and climate change as reasons to believe that eventually real GDP per person will decrease.
...
Opportunity cost is a ratio. It is the decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as we move along the production possibilities frontier.
...
Over the past 100 years, the average growth rate of U.S. real GDP per person is 2 percent.
...
The CPI is just one of many alternative price level index numbers
...
The ability of a person to perform an activity or produce a good or service at a lower opportunity cost than anyone else is comparative advantage.
...
The bias in the CPI distorts private contracts.
...
The class of 2017 had a better time in the job market than those of the decade that preceded it.
...
The monetary base decreases. The supply of money decreases and the interest rate rises.
...
The present value of a future dollar is the amount that will grow to be as large as that future value when the interest that it will earn is considered.
...
Over the past 100 years, growth was most rapid during the ______ and slowest during the ______.
1960s; Great Depression
Daisy loans Alfred $10,000 and a year later, Alfred pays Daisy $10,400. If the inflation rate during that year is 1.5 percent, what is the real interest rate that Alfred is paying to Daisy? The real interest rate that Alfred is paying to Daisy is _______.
2.5 percent a year
The money price of a pack of frozen burritos is $0.60 and the money price of a pack of granola bars is $3.00. The opportunity cost of a pack of granola bars is _______.
5.00 packs of frozen burritos, which is the relative price of a pack of granola bars
Hyperinflation is an inflation rate of _____ or higher that grinds the economy to a halt and causes a society to collapse.
50 percent a month
An increase in the price of onions _______.
decreases the quantity of onions demanded and results in a movement up along the demand curve for
Choose the statement about flexible exchange rates that is correct.
A flexible exchange rate is influenced by central bank actions.
Explain the event in the news clip in terms of what is happening to the short-run and long-run Phillips curves.
A low expected inflation rate has shifted the short-run Phillips curve downward.
Choose the statement that is incorrect.
As the federal funds rate rises, the quantity of reserves supplied increases.
The Taylor rule sets the federal funds rate (FFR) using the following formula, where INF is the inflation rate and GAP is the output gap.
FFR = 2 + INF + 0.5(INF−2) + 0.5GAP
The President submits a fiscal 2018 budget proposal to Congress in ______. After this date, Congress debates, amends, and enacts the budget until ______.
February 2017; October 1, 2017
The liabilities of the Fed are ______, and these liabilities along with ______ make up the monetary base.
Federal Reserve notes held by households and businesses and reserves of depository institutions; coins issued by the Treasury
______—the use of the federal budget to achieve macroeconomic objectives such as fullemployment, sustained economicgrowth, and price level stability—is made by______ on an annual timeline.
Fiscal policy is; the President and Congress
Present value
Future Value/(1+r)^n
The Fed tries to maximize the output gap, especially when that gap is positive.
Incorrect
What makes an exchange rate hard to predict?
Influences of expectations and the constant arrival of news about the influences on supply and demand, make day-to-day and week-to-week changes in the exchange rate difficult to predict.
If in the long run, the U.S. dollar appreciates against the Japanese yen, then ______.
Japan has created money at a faster pace than has the United States, and the price level in Japan has risen more rapidly than the U.S. price level
The equation of exchange is ______ and it is true ______.
MV = PY; by definition
Two economists are debating the cause of a high unemployment rate. One economist argues that there is not enough government spending. The other says high unemployment is a structural problemlong dash—people who can't move to take new jobs because they are tied down to burdensome mortgages or firms that can't find workers with the skills they need to fill job openings. Which business cycle theory would say that the first economist is correct and why? ______ business cycle theory, because it says unemployment is caused by too little aggregate ______ .
Mainstream; demand
Fiscal 2018 begins on ______ and supplementary budget laws for 2015 may be passed until fiscal 2015 ends on ______.
October 1, 2017; September 30, 2018
The core inflation rate is the annual percentage change in the _____ price index _____ the prices of food and energy.
PCE; excluding
Unemployment rate
Percentage of the people in the labor force who are unemployed
Choose the correct statement about an increase in the population.
Potential GDP per hour of labor decreases.
Choose the correct statement about growth in labor productivity.
Potential GDP per hour of labor increases.
A tax on labor income ______. The equilibrium quantity of labor ______.
decreases the supply of labor; decreases
The Council of Economic Advisers monitors the economy and keeps the _____ informed about the current state of the economy and the best available forecasts of where it is heading.
President and the public
Defenders of RBC theory claim all of the following except _______.
RBC theory is consistent with a negligible intertemporal substitution effect
Which business cycle theory would say that the second economist is correct and why? ______ business cycle theory, because it says unemployment is ______ .
Real; structural, caused by technological shocks that decrease aggregate supply
Budget balance
Receipt-Outlays
Since 1980, the gap between the United States and _______.
Russia and between the United States and Nigeria narrowed, the gap between the United States and Mexico widened, and the gap between the United States and the Europe Big 4 remained relatively constant
U-2 measures the job losers
U-3 is the official unemployment rate
Among the G7, the country with the highest real GDP per person in 2016 is _______.
United States
Choose the correct statement about the U.S. short-run Phillips curve.
We can interpret U.S. inflation and unemployment data in terms of a shifting short-run Phillips curve, which sometimes shifts upward and sometimes shifts downward.
Choose the statement about a crawling peg that is correct.
When China abandoned its fixed exchange rate, it replaced it with a crawling peg.
Explain the relationship between asset prices and the interest rate.
When the price of an asset rises, the interest rate falls, everything else remaining the same.
A fiscal policy action that might increase investment and speed economic growth is ______ , which works by ______ the real interest rate paid by borrowers and ______ the real interest rate earned by savers and suppliers of loanable funds.
a decrease in the tax on interest income; lowering; raising
Japan's current exchange rate policy is ______.
a flexible exchange rate
A rise in the money wage rate with no change in potential GDP creates ______.
a leftward shift of the SAS curve and no change in the LAS curve
A mortgage is _______.
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments (repayments and interest)
A property right is______.
a social arrangement that governs the ownership, use, and disposal of anything that ppl value
A choice on the margin is a choice that is made by comparing all the relevant _____ systematically and _____. Marginal cost is the _____ that arises from one unit _____ in an activity. Marginal benefit is the _____ that arises from one unit _____ in an activity.
alternatives; incrementally; opportunity cost; increase; benefit; increase
In the United States, the CPI basket consists of items that ______ . ______ has the greatest weight in the CPI basket.
an average urban household buys; Housing
The effect of China's choice of exchange rate regime is _______.
an increase in U.S. dollar reserves when China's target rate is above the equilibrium exchange rate and a decrease in U.S. dollar reserves when China's target rate is below the equilibrium exchange rate
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
The equilibrium quantity _______.
and equilibrium price are determined at the intersection of the supply curve and the demand curve
If aggregate demand grows faster than potential GDP, ______ gap emerges and if it grows more slowly than potential GDP, ______ gap emerges.
an inflationary; a recessionary
China fixes its exchange rate ______.
as a way of achieving a low inflation rate
The aggregate demand curve slopes downward because _______.
as the price level falls, expected future profits increase D. of the wealth effect and the substitution effect
The massive changes in the monetary base resulting from QE and QT can be reconciled with the Federal Reserve Act of 2000 because the Fed attempts to _______.
attain maximum employment and stable prices
The Fed's primary goal is price stability because ______ .
attaining this goal helps to attain its other two goals of maximum employment and moderate long-term interest rates
A type of _____ is a mortgage-backed security, which entitles _____ to the income from a package of mortgages.
a bond; its holder
Gross domestic product and gross investment are measured ______. Net domestic product and net investment are measured ______
before the depreciation of capital; after the depreciation of capital
The marginal benefit of a good or service is the _____.
benefit received from consuming one more unit of it.
Pencil production is efficient if the marginal _______ a pencil equals the marginal _______.
benefit from; cost of a pencil
Rational choice is a choice that uses the available resources to _____ of the person making the choice.
best achieve the objective
If the Fed had followed the Taylor Rule, the federal funds rate would have been higher ______, and lower ______.
between 2001 and 2005 and after 2011; in 2007
China operates a crawling peg by ______.
buying and selling U.S. dollar reserves
If the interest rate is 5 percent, people will ______.
buy bonds, bid up their price, and the interest rate will fall
Marginal benefit from food crops _______.
cannot be calculated from the table because marginal benefit is unrelated to production possibilities
The ______ account records ______ U.S. investment abroad.
capital and financial; foreign investment in the United States minus
The alternative index, which might be least biased is the _______.
chained CPI because it uses current and previous period quantities
structural
change in technology and stuff
The natural unemployment rate _______.
changes as frictions and structural change occur in the economy
Work hours growth is influenced by _______.
changes in average hours per worker
In real business cycle theory, all of the following events can be sources of fluctuation in productivity except _______.
changes in the growth rate of money
The deposits of the following three types of depository institutions make up the nation's money: ______.
commercial banks, thrift institutions, and money market mutual funds
Firms make investment decisions by _______.
comparing the expected profit with the real interest rate and making the investment if the project has a positive net present value
China makes its choice of exchange rate regimes to _______.
control its inflation
To make comparisons of real GDP between two countries we must ______.
convert the real GDP of one country into the same currency units as the real GDP of the other country, and use the same prices to value the goods and services in the countries being compared
The politician wants a ______ in the short run. This policy would have no effect on the exchange rate in the long run because in the long run ______.
crawling peg; the price level and the nominal exchange rate are determined together
In normal times, the Fed hits its federal funds rate target by _______ , and by ________ at the target rate.
creating a "corridor" that limits the movement of the federal funds rate; supplying the quantity of reserves demanded
Depository institutions provide four benefits, which are ______.
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk
The main components of money in the United States today are ______.
currency and deposits at banks and other depository institutions
Full employment is when there is no _____ unemployment or, equivalently, when all the unemployment is _____ or _____.
cyclical; frictional; structural
Currently, the United States is a _______.
debtor nation and a net borrower
The supply of labor will ______ and the demand for labor will ______.
decrease because the tax weakens the incentive to work; not change because labor productivity doesn't change
Taxes on capital income more powerful than those on labor income because they ______.
decrease saving and investment, which slows the growth rate of real GDP
Potential GDP will ______ because ______ .
decrease; employment decreases
The equilibrium quantity of donuts _______.
decreases
Marginal benefit ______.
decreases as more of a good is consumed
If the wage rate of dairy workers rises, the supply of low-fat milk _______.
decreases because the cost of producing low-fat milk increases
An unexpected increase in aggregate demand ______ rate, which is shown by ______ the short-run Phillips curve.
decreases unemployment and increases the inflation; a movement up along
A decrease in U.S. demand for imports ______ the supply of U.S. dollars. A rise in the U.S. interest rate differential ______ the supply of U.S. dollars.
decreases; decreases
Investment ______, and aggregate demand ______ with a multiplier effect.
decreases; decreases
A rise in the expected future exchange rate ______ the supply of U.S. dollars. An increase in the world demand for U.S. exports ______ the supply of U.S. dollars.
decreases; does not change
The supply of loanable funds ______ and the long-term interest rate ______.
decreases; rises
A rise in the wage rate _______.
decreases short-run aggregate supply and does not change long-run aggregate supply
This decrease in expected profit _______ the demand for loanable funds and brings _______ the demand for loanable funds curve.
decreases; a leftward shift of
In new classical cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate _____, determines the _____ and the position of the SAS curve.
demand; money wage rate
The ratio of reserves to deposits that a bank plans to hold is its ______. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has ______.
desired reserve ratio; unplanned reserves
Two interest rates create a "corridor" that limits the movement of the federal funds rate. The _______ acts as a cap on the federal funds rate and the _______ acts as a floor.
discount rate; interest rate on reserves
In new growth theory ______.
discoveries result from choices
he Bank of America's total assets ______ and its total liabilities ______.
do not change; do not change
If the price of low-fat milk rises, the supply of low-fat milk _______.
does not change because the relationship between price and quantity supplied does not change
Real GDP ______.
does not include a measure of leisure time or environmental quality
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
does not change; long-run
The United States ______ have a stable short-run Phillips curve because ______.
does not; it shifts when the expected inflation rate and natural unemployment rate change
Because the tax ______ , the equilibrium level of employment will ______ , the before-tax wage rate will ______, and the after-tax wage rate will ______.
drives a wedge between the take-home wage and the cost of labor; decrease; rise; fall
A person is in the labor force if that person is
either employed or unemployed
Interest rate parity means ______.
equal rates of return
When an economy is below full employment and the government has a budget deficit, that deficit ______.
exceeds the structural deficit
The core inflation rate is the percentage change in the core PCE deflator, which is the PCE deflator _______. The PCE deflator is an index based on ______ the CPI.
excluding food and fuel; a different basket than the CPI
Prior to the Great Depression, the purpose of the federal budget was to ______.
finance federal government programs and activities
GDP equals aggregate income and also equals aggregate expenditure because _______.
firms pay out as incomes (aggregate income) everything they receive from the sale of their output (aggregate expenditure)
The employment-to-population ratio _______.
followed an upward trend before 2000 and then followed a downward trend
The official settlements account records the change in U.S. official reserves, which are the government's holdings of ______. If U.S. official reserves decrease, the official settlements account balance is ______.
foreign currency; positive
The benefit of something is the _____. Benefit is determined by preferences - by what a person _____ and the intensity of those feelings.
gain or pleasure it brings; likes and dislikes
The _______, the greater is the amount that a household decides to save.
greater a household's disposable income and the smaller a household's expected future income
Potential GDP per person ______.
grows at a steady pace but not at a constant pace
A depository institution takes deposits from ______ and earns most of its income by _______.
households and firms; making loans and buying securities that earn a higher interest rate than that paid to depositors
The quantity of investment and borrowing that firms plan to undertake depends on ______.
how productive capital is and what it costs
The pace of labor productivity growth is influenced in part by _______.
human capital growth
A person is not in the labor force if they are ______.
in the working-age population but neither employed nor unemployed
If the inflation rate is below or expected to move below the bottom of the comfort zone, the Fed considers raising the interest rate.
incorrect
The Fed's open market operations determine the demand for reserves.
incorrect
Suppose the Fed buys $50 million of government securities from the Bank of America. The Fed's total assets ______ and its total liabilities ______.
increase by $50 million; increase by $50 million
It is unlikely that the United States is on the "wrong" side of this curve because, if it were, a decrease in the tax rate would ______ .
increase tax revenue
In July 2017, U.S. government debt _______.
increased by $43 billion
Congress would have to _______.
increased taxes and/or decrease expenditure
An increase in expected future profits _______.
increases aggregate demand today
An increase in expected future income _______. An increase in the expected future inflation rate _______.
increases aggregate demand today; increases aggregate demand today
If the price of cream rises, the supply of low-fat milk _______.
increases because cream and low-fat milk are complements in production
A government budget deficit _______ loanable funds.
increases the demand for
A government budget surplus _______ loanable funds.
increases the supply of
An increase in the population ______ the equilibrium quantity of labor, ______ and potential GDP.
increases; increases
A rise in labor productivity _______.
increases long-run aggregate supply and short-run aggregate supply
What items would you need in addition to the items given in the table to complete your calculation of GDP using the income approach?
indirect taxes less subsidies
Between 1980 and 2016, the gap between real GDP per person in the United States and real GDP per person in Japan ______.
initially narrowed and then widened as Japan's economy stagnated
In monetarist cycle theory, fluctuations in both _____, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuation in aggregate demand.
investment and consumption expenditure
Because FOMC members are predicting rising inflation and falling unemployment, they are predicting that the U.S. economy ______.
is on a short-run Phillips curve to the right of the LRPC and will move leftward up along the SRPC
A fixed exchange rate is one that _______. A fixed exchange rate is achieved _______.
is set by the government or the central bank; by central bank intervention in the foreign exchange market
An economic model ______. An example of a model is ______.
is simpler than the reality it describes; a roadmap.
The cyclical surplus or deficit ______.
is the actual surplus or deficit minus the structural surplus or deficit
The structural surplus or deficit ______.
is the budget balance that would occur if the economy were at full employment
The core inflation rate _______.
is the rate of increase in the core PCE deflator, which is the PCE deflator excluding food and fuel
The natural unemployment rate _______.
is the unemployment rate at full employment
The Fed might have decided to cut the federal funds rate in 2017 if ______. The Fed might have decided to raise the federal funds rate in 2017 if ______.
it deemed unemployment to be a greater problem than inflation; it deemed inflation to be a greater problem than unemployment
The substitution effect influences food purchases because when the price of a certain food rises, other things remaining the same, ______. Consumers ______.
its relative price rises; purchase more of a different food that is less expensive
The unemployment rate is the percentage of the people in the _____ who are unemployed.
labor force
The currency drain ratio for M1 is ______ than for M2, and the banks' reserve ratio for M1 is ______ than for M2.
larger; larger
How do the earnings of economics majors compare with other majors? Economics majors earn _______.
less than chemical engineering majors and applied mathematics majors but more than most other majors
Demand and supply in the market for _______ determine the long-term real interest rate. In the short run, a change in the _______ changes the equilibrium real interest rate.
loanable funds; federal funds rate
In the long run, supply and demand in the ______ market determines the real interest rate. The ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.
loanable funds; price level
The quantity theory of money is that in the _______, an increase in the quantity of money brings an equal percentage increase in the _______.
long run; increase in the price level
The functions of depository institutions include _______.
lowering the cost of monitoring borrows
An increase in the population _______ the real wage rate.
lowers
An unexpected burst of inflation _______.
makes workers worse off and makes employers better off
Which of the following is not a role played by the Budget Committees of the House of Representatives and the Senate in creating fiscal policy?
making the initial budget proposal in February
The marginal benefit curve is a curve that shows the relationship between the _____.
marginal benefit from a good and the quantity consumed of that good
Choose the correct statement.
market prices and factor cost diverge because of indirect taxes and subsidies
The Fed's dual mandate is to _____ .
maximize employment and keep the inflation rate low and long-term interest rates moderate
The objectives of monetary policy are _______.
maximum employment, stable prices, and moderate long-term interest rates
Think about the following news items. Which items involve a microeconomic issue and which involve a macroeconomic issue? A. More police comma managed more effectively comma really can reduce crimeMore police, managed more effectively, really can reduce crime B. U.S. inflation expectations at highest level since 2015U.S. inflation expectations at highest level since 2015 C. Would California's proposed tobacco tax hike reduce smoking question markWould California's proposed tobacco tax hike reduce smoking? D. U.S. economy adds 227 comma 000 jobs in JanuaryU.S. economy adds 227,000 jobs in January Statement A involves a ______ issue. Statement B involves a ______ issue. Statement C involves a ______ issue. Statement D involves a ______ issue.
micro; macro ;micro ; macro
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment.
money wage rate
The money multiplier is the ratio of the change in the quantity of ______ to the change in the quantity of ______.
money; monetary base
When the economy goes into recession, the output gap is _______.
negative
A country that is borrowing more from the rest of the world than it is lending to the rest of the world is a ______, and a country that during its entire history has borrowed more from the rest of the world than it has lent to it is a ______.
net borrower; debtor nation
In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
new classical; new Keynesian
Also, taxes on capital income more powerful than those on labor income because they are levied on the ______, which makes them ______.
nominal interest rate; high as a percentage of the real interest rate
real interest rate
nominal minus inflation
inflation rate
nominal minus real
The labor force is the number of people employed plus the _____.
number unemployed
Marginal benefit from a good or service is the benefit received from consuming ______. It is measured by the most that people are willing to pay for ______.
one more unit of it; an additional unit of it
A rational choice is _______.
one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice
An economic model is a description of some features of the economic world that includes _____ features assumed necessary to explain the _____facts.
only those; observed
The marginal cost of a good or service is the _____.
opportunity cost of producing one more unit of it
The private sector balance and the government sector balance tend to move in ______. Net exports respond ______.
opposite directions; to the sum of the government sector and private sector balances
Examples of physical capital are ______. Examples of financial capital are ______.
ovens used by Pizza Hut and lawn mowers used by Larry's Mowing; bonds issued by Wal-Mart and stocks issued by Boeing
The chained CPI ______.
overcomes the sources of bias in the CPI by incorporating substitutions and using current and previous period quantities
China was the world's largest economy until 1890 because ______.
people in all countries had approximately the same subsistence level of income and China had the largest population
Unemployment arises when ______.
people leave their jobs and spend time searching for another job that better suits their abilities
Classical macroeconomists recommend ______.
policies that minimize the disincentive effects of taxes on employment, investment, and technological change
Indicate whether each of the following news items is a positive or a normative statement. 1. More police on inner dash city streets will lower the crime rate. 2. Cable subscribers are decreasing. 3. The PlayStation has a larger range of games than the XBox. 4. Work hours are too long. Statement 1 is a ______ statement, and statement 2 is a ______ statement. Statement 3 is a ______ statement, and statement 4 is a ______ statement.
positive; positive. positive; normative.
In the long-run macroeconomic equilibrium, ______.
potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level
cyclical defecit
potential GDP exceeds actual real GDP
Economic growth is the persistent increase in ______. Economic growth is accompanied by inflation when the ______.
potential GDP; AD curve shifts rightward at a faster rate than the LAS curve shifts rightward
The mainstream business cycle theory is that ______ grows at a steady rate while ______ grows at a fluctuating rate.
potential GDP; aggregate demand
The output gap is real GDP minus _____ expressed as a percentage of _____.
potential GDP; potential GDP
frictional
ppl entering and leaving to find better jobs, etc.
Net present value is the _______.
present value of all the future flows of money that arise from a financial decision minus the initial cost of the decision
Consumption taxes are relevant for measuring the tax wedge because they increase the ______.
prices paid for consumption goods and services, which is equivalent to a cut in the real wage rate
The inflation rate is the percentage change in the _____ from one year to the next. Deflation is a situation in which the _____ is _____ and the inflation rate is _____
price level; price level; falling; negative
The newest theory of the business cycle, known as real business cycle theory (or RBC theory), regards random fluctuations in _____ as the main source of economic fluctuations.
productivity
Which of the following are included in the income approach to calculating GDP?
proprietors' income; net interest; depreciation
If a shortage of U.S. dollars occurs in the foreign exchange market, the _______ and the exchange rate _______.
quantity of U.S. dollars demanded decreases and the quantity of U.S. dollars supplied increases; rises
If a surplus of U.S. dollars occurs in the foreign exchange market, the _______ and the exchange rate _______.
quantity of U.S. dollars demanded increases and the quantity of U.S. dollars supplied decreases; falls
When the real interest rate rises, the ______ because the ______ is the opportunity cost of loanable funds.
quantity of loanable funds demanded decreases; real interest rate
The defining feature of the Keynesian view of macroeconomics is that the economy is ______.
rarely at full employment
On average in the United States, the inflation rate and the money growth rate minus the real GDP growth rate ______.
rise and fall together
According to classical growth theory, when real GDP per person ______, the population grows.
rises above the subsistence level
The demand for loanable funds increases and the supply of loanable funds increases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises, falls, or remains the same; increases
When the CPI _______.
rises slowly, the inflation rate is low
The Fed was puzzled because low unemployment usually brings ______ .
rising inflation
The Fed conducts an open market ______ to hit the new ______ federal funds rate target.
sale; higher
The supply of loanable funds is determined by the _________. The supply of loanable funds changes when _______.
saving decisions of households, which are influenced by the real interest rate, disposable income, expected future income, wealth, and default risk; disposable income, expected future income, wealth, or default risk change
The defining feature of the classical view of macroeconomics is that the economy is ______.
self-regulating and always at full employment
An increase in the population ______.
shifts the supply of labor curve rightward and creates a movement along the production function
If the expected inflation rate increases by 10 percentage points, how do the short-run Phillips curve and the long-run Phillips curve change? The short-run Phillips curve ______ , and the long-run Phillips curve ______ .
shifts upward by 10 percent; doesn't change
If the natural unemployment rate increases, what happens to the short-run Phillips curve and the long-run Phillips curve?The long-run Phillips curve _______ and the short-run Phillips curve ______.The expected inflation rate
shifts rightward; shifts rightward; does not change
When the money wage rate rises_______. When the price level in India increases _______.
short-run aggregate supply decreases; the quantity of real GDP supplied increases
The labor-force participation rate _______.
shows a steep downward decrease in 2008 and 2009
The U.S. M1 multiplier is _______ the U.S. M2 multiplier.
smaller than
State the financial decision rule: If the net present value is positive _______ and if the net present value is negative _______.
take the action; do not take the action
The growth rate of real GDP per person _______.
tells us about changes in the standard of living and the growth rate of real GDP tells us how rapidly the total economy is expanding
The Federal Reserve Act makes _______ responsible for the conduct of monetary policy.
the Board of Governors of the Federal Reserve System and the Federal Open Market Committee
The factors that might make the natural unemployment rate change include _______.
the age distribution of the population, the scale of structural change, the real wage rate, and unemployment benefits
In 1890, the United States surpassed China to become the world's largest economy because ______.
the benefits of the Industrial Revolution were greater in the United States than in China
The Fed defines the rate of increase in _____ as the core inflation rate.
the core PCE deflator
The data that describe _____ are summarized in the Fed's Beige Book.
the current state of the economy
In the short run, the nominal exchange rate is determined by ______. And in the short run ______.
the demand for U.S. dollars and the supply of U.S. dollars in the foreign exchange market; a change in the nominal exchange rate brings an equivalent change in the real exchange rate
The Fed's monetary policy instrument is _______. A monetary policy instrument is _______.
the federal funds rate; a variable that the Fed can directly control or closely target
When there is a surplus of dollars in the foreign exchange market, ______.
the forces of supply and demand pull the foreign exchange market into equilibrium
The impulse in RBC theory is _______.
the growth rate of productivity that results from technological change
The main influences on the FOMC federal funds rate decision are _______.
the inflation rate, the unemployment rate, and the output gap
One of the Fed's main policy tools is ______.
the last resort loan, which means that if a bank is short of reserves, it can borrow from the Fed
When GDP per person in China in 2016 is valued at ______, GDP per person in the United States is _______ times that in China.
the market exchange rate; 6.3
The Fed's two possible monetary policy instruments are _______, and the Fed uses ______ .
the monetary base and the federal funds rate; the federal funds rate
According to mainstream business cycle theory, _______.
the money wage rate is sticky and consequently if aggregate demand grows faster than potential GDP, an inflationary gap emerges
As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the prices of other resources, and potential GDP remain constant
When cyclical unemployment increases and other things remain the same, ______.
the natural unemployment rate does not change
The CPI tells us ______.
the price level in a given period expressed as a percentage of the price level in the base period, which is by definition equal to 100
a shortage in the market of oil implies that
the price of oil is being prevent from influencing buying and selling plans
The demand for onions does not change when a change in _______ occurs.
the price of onions
The income effect influences food purchases because when the price of a certain food rises, other things remaining the same, ______. Consumers ______.
the price rises relative to income; cannot afford to buy all the things they previously bought, so they normally buy less of the food that has experienced the price rise
A surplus occurs at a given price when ______. The price _____ to reach equilibrium.
the quantity supplied is greater than the quantity demanded;
When unwanted inventories pile up, _____. Prices _____.
the quantity of real GDP supplied is greater than the quantity of real GDP demanded; fall
The real interest rate is the opportunity cost of loanable funds because ______
the real interest paid on borrowed funds is the opportunity cost of borrowing and the real interest rate forgone is the opportunity cost of not saving or not lending those funds
The demand for loanable funds is determined by ______. The demand for loanable funds changes when ______ changes.
the real interest rate and expected profit; expected profit
When a shortage or a surplus arises in the loanable funds market _______.
the real interest rate is pulled to the new equilibrium level
As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant
The relative price of a pack of granola bars is an opportunity cost because ______.
the relative price tells us how many packs of frozen burritos we must give up to get a pack of granola bars
Gross investment is ______. Net investment is ______.
the total amount spent on new capital; the change in the value of capital
Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate
If most prices have decreased in the United States and not decreased in Japan and other countries, ______.
then for purchasing power parity to hold, the value of the U.S. dollar in the foreign exchange market will
An economy is at full employment when ______.
there is no cyclical unemployment
Potential GDP is determined by ______.
the full-employment quantity of labor
If the natural unemployment rate increases and the expected inflation rate remains constant, then ______.
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward
If the expected inflation rate increases and the natural rate of unemployment remains constant, then _______.
the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift
The demand-side effects of a tax cut are likely to be larger than an equivalent increase in government expenditure.
this is incorrect
Choose the correct statement.
to isolate the increase in production from the rise in prices, we distinguish between real GDP and nominal GDP
Alternative price indexes can avoid the bias by _______.
using current and previous period quantities
Allocative efficiency is a situation in which the quantities of goods and services produced are those that people _____ - it is not possible to produce more of a good or service _____ some of another good that people _____.
value most highly; without giving up; value more highly
The net present value is the _______ flows of money from a financial decision minus _____ .
value today of all future; the initial cost of the decision
What does the Phillips curve model say about the relationship between the unemployment rate and the inflation rate? The Phillips curve model says the short-run relationship is negative (inverse) and shifts ______ .
when the expected inflation rate changes and when the natural unemployment rate changes
The range of economists' pay is _______ and the median level of pay is ______
$41,226 to $124,177; $72,279
CPI = ______.
(Cost of CPI basket at current-period prices÷Cost of CPI basket at base-period prices)×100
A monetary policy instrument is a variable that the _____ can directly control or closely target and that influences _____ in desirable ways.
Fed; the economy
In ______ cycle theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
Keynesian; monetarist
The relationship between the tax rate and the amount of tax revenue collected is called the ______ curve. This curve shows that ______.
Laffer; tax cuts can increase tax revenue
The ______ appoints the members and the Chairman of the Board of Governors of the Fed. The ______ is responsible for the conduct of monetary policy.
President; Fed
The inflation rate is calculated as _________.
[(CPI this year−CPI last year)÷CPI last year]×100
If the U.S. exchange rate changes from $1.20 Canadian to $1.25 Canadian, then the U.S. dollar has _______ and the Canadian dollar has _______.
appreciated; depreciated
A marginally attached worker is a person who does not have a job, is _____ and _____ to work, has _____ specific efforts to find a job within the previous _____ weeks, but has looked for work sometime in the recent past.
available; willing; not made; four
The goals of monetary policy are in ______ in the short run and in ______ in the long run.
conflict; harmony
The ______ account records receipts from exports of goods and services sold abroad, payments for imports of goods and services from abroad, and ______.
current; net interest income paid abroad and net transfers
This decrease in expected profit _______ the demand for loanable funds and brings _______ the demand for loanable funds curve.
decreases; a leftward shift of
Suppose that purchasing power parity does not hold. If all (or most) prices have increased in the United States and not increased in Japan, then people will generally expect that the foreign exchange value of the dollar will ______. The demand for dollars ______.
fall; decreases and the supply of dollars increases
When a surplus arises, the price ______ to its equilibrium, which _______.
falls; increases the quantity demanded and decreases the quantity supplied
Between 1997 and 2005, China operated a _______ exchange rate. Since 2005, China has operated a _________ exchange rate.
fixed; crawling peg
The law of demand for foreign exchange states that other things remaining the same, the ______ the exchange rate, the smaller is the ______ in the foreign exchange market.
higher; quantity of U.S. dollars demanded
If the interest rate on Treasury bills is lower than the federal funds rate, the quantity of overnight loans supplied ______ and the demand for Treasury bills ______.
increases; decreases
An increase in real GDP ______ the demand for money and financial innovation ______.
increases; generally decreases
If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
increases; short-run
In Keynesian cycle theory, fluctuations in _____ driven by fluctuations in business confidence - summarized by the phrase "animal spirits" - are the main source of fluctuations in _____.
investment; aggregate demand
There _____ crowding out in this situation because _____
is; the deficit increases the real interest rate, which decreases the quantity of loanable funds demanded
Net worth is the total market value of what a financial institution has _____ minus the market value of what it has _____.
lent; borrowed
When potential GDP increases, ______.
long-run aggregate supply and short-run aggregate supply increase. The LAS and the SAS curve shift rightward
The Federal Reserve Act of 2000 says that the Fed "shall maintain ______ growth of the monetary and credit aggregates commensurate with the economy's ______ potential to increase production."
long-run; long-run
A government budget surplus _______ the real interest rate, decreases ______.
lowers; private saving, and increases investment
A decrease in the demand for donuts together with a decrease in the supply of donuts ______ create a surplus or a shortage of donuts at the original price. The equilibrium price of donuts ______.
might; might fall, rise, or not change
The new Keynesian cycle theory emphasizes the fact that today's money wage rates were negotiated at many past dates, which means that _____ rational expectations of the _____ price level influence the money wage rate and the position of the SAS curve.
past; current
The crowding-out effect is the tendency for a government budget deficit to ______ the real interest rate and decrease ______.
raise; investment
A government budget deficit _______ the real interest rate, increases ______.
raises; private saving, and decreases investment
A government budget deficit ______ the real interest rate because ______.
raises; the demand for loanable funds increases
The demand for loanable funds increases and the supply of loanable funds increases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises, falls, or remains the same; increases
The demand for loanable funds increases and the supply of loanable funds decreases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises; increases, decreases, or remains the same
Think of examples of goods whose relative price has risen or fallen by a large amount. In 2007, the price of a gallon of gas was $2.59. In 2017, the price of a gallon of gas was $2.32 In 2007, the price of a dozen eggs was $1.63. In 2017, the price of a dozen eggs was $1.40. Between 2007 and 2017, the relative price of a gallon of gas with respect to a dozen eggs _______ and the relative price of a dozen eggs with respect to a gallon of gas _______.
rose; fell
The defining feature of the monetarist view of macroeconomics is that the economy is______.
self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
When fuel prices rise _______. When the price level in India increases _______.
short-run aggregate supply decreases; the quantity of real GDP supplied increases
When the money wage rate rises _______. When the price level in India increases _______.
short-run aggregate supply decreases; the quantity of real GDP supplied increases
