ALL 3 MACRO TESTS - use for final

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Norway and the U.S. each produce computers and cheese according to the following​ schedule: Computers Cheese United States ​10,000 ​20,000 Norway 12,000 8,000 1. Which country has the absolute advantage in​ computers? 2. Which country has the absolute advantage in​ cheese? 3. Which country has the comparative advantage in​ computers? 4. Which country has the comparative advantage in​ cheese? 5. Comparative advantage is based on what kind of economic​ costs? 6. Which of the following statements best reflects this​ situation? 7. Who would be most likely to recommend to these two nations that they engage in​ trade? 8. In what product should Norway​ specialize? 9. In what product should the United States​ specialize? 10. What is the lowest acceptable price for​ computers? 11. What is the highest acceptable price for​ computers? 12. What is the lowest acceptable price for​ cheese? 13. What is the highest acceptable price for​ cheese?

1. Norway 2. United States 3. Norway 4. United States 5. Opportunity costs 6. Regardless of whether a country has one or two of the absolute​ advantages, both countries can benefit from trade. 7. Almost all economists 8. Norway should produce​ 12,000 computers 9. The US should produce​ 20,000 cheese. 10. 2/3 cheese 11. 2 cheese 12. 1/2 computer 13. 3/2 computers

Categorize the following items as either an asset of the Fed or a liability of the Fed. 1. U.S. government securities 2. Federal Reserve notes 3. Loans to depository institutions 4. Depository institution deposits The monetary base is equal to​ ______.

1. asset 2. liability 3. asset 4. liability the​ Fed's liabilities together with coins issued by the Treasury

Click on the icon to study Economics in the News. Then answer the following questions. 1. To keep pace with a growing​ population, approximately​ _______ jobs must be created each month. 2. Normally when the pace of job creation exceeds the increase in​ population, the unemployment rate ​_______. 3. When the pace of job creation exceeds the increase in​ population, the unemployment rate sometimes increases because​ _______. 4. We would expect the labor force participation rate to​ _______ in response to job creation in excess of population growth. 5. We would expect an increase in the growth rate of real GDP to​ _______ jobs and​ _______ unemployment.

1. ​200,000 2. falls 3. discouraged workers return to the labor force 4. increase 5. increase; decrease

An economy has a consumption function of C​ = 10​ + 0.8Y​, investment of​ 6, government expenditure of​ 10, exports of​ 10, and an import function of M​ = 0.1Y. If government expenditure increases to​ 15, what is the increase in equilibrium​ expenditure?

16.65

The table gives information about the labor market in July 2014 in the economy of Sandy Island. What is the unemployment rate and the ​employment-to- population ratio in July ​2014? Calculate the number of people​ unemployed, the number​ employed, and the unemployment rate at the end of August 2014. In July ​2014: The unemployment rate is ______ percent. The ​employment-to-population ratio is _______ percent. At the end of August ​2014: The number of people unemployed is ________. The number of people employed is _______. The unemployment rate is ________ percent.

16.7 55.6 1880 10,020 15.8

An economy has a consumption function of C​ = 15​ + 0.7Y​, investment of​ 8, government expenditure of​ 12, exports of​ 20, and an import function of M​ = 0.2Y. What is the multiplier for this​ economy?

2

Refer to the following​ graph, which represents​ Alice's Production Possibilities Frontier. At which levels of production is Alice producing​ inefficiently?

200 units of lemonade and 50 units of pizza

The Current Population Survey reported the following situations in July​ 2014t: • Sarah works 10 hours a week at​ McDonald's. She is available to work more hours but​ hasn't looked for extra work. • Kevin spent the first six months of 2014 actively searching for a job but he​ didn't get hired. He believes there are no​ jobs, so he has given up looking. 3. How will the unemployment rate change if Sarah quits and starts to search for a​ full-time job? The unemployment rate will​ _____ if Sarah quits and starts to search for a​ full-time job. 4. How will the labor force participation rate change if Kevin starts creating football apps in his garage and they turn out to be very​ popular? The labor force participation will​ _____ Kevin starts creating football apps in his garage and they turn out to be very popular.

3. rise 4. rise

Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table to the right. She would have to hire a worker for those hours at a wage rate of​ $12 per hour. Using marginal​ analysis, determine how many hours should Eva extend her​ bakery's hours of​ operations?

4 hours

The figure shows the flows of expenditure and income in an economy. In 2014​, flow D was ​$3 trillion​, flow E was −$0.7 trillion​, flow A was ​$13.3 trillion​, and flow C was ​$2 trillion. Calculate consumption expenditure. In 2014​, consumption expenditure is ​$___ trillion

9

The Population Survey in Blogsville for the past month is given in the​ table: In Blogsville last​ month, ______ million people were in the labor force and​ ______ million people were in the​ working-age population.

98; 135

Choose the correct statement.

A credit card is not a means of payment.

​________ behavioral assumption about humans was that people usually act in a​ rational, selfminus−interested way.

Adam​ Smith's

Jeb makes the following four statements about peanuts. Which statement best describes his quantity demanded in the peanut​ market?

At a price of​ $1 per​ pack, I plan to buy 2 packs of peanuts per week.

In the​ figure, when 2000 bicycles are produced each​ month, we can see that

Both answers A and B are correct.

The graph shows the private demand for loanable funds curve and the supply of loanable funds curve. Draw a curve that shows the effect on the loanable funds market when the government has a budget deficit. Label it C1. Draw a curve that shows the​ Ricardo-Barro effect on the loanable funds market. Label it C2. Draw a point at the new real interest rate and quantity of loanable funds. The​ Ricardo-Barro effect ________ crowding out.

C1 is to the right of PDLF C2 is to the right of SLF eliminates

Which of the following is an example of investment​?

Continental buying Airbus planes

Economics promotes which of the following as the way to make the best​ decision?

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Which of the following is an example of a final good or service​?

Dan bought a Toyota Camry.

If Dani and Emily devote equal amounts of time and effort to making​ pretzels, Dani produces more units than Emily. This information tells us that

Dani has an absolute advantage in producing pretzels

Which of the following fiscal policies combats​ inflation?

Decreasing government spending

If it costs Vijay​ $150 to design 5 websites and​ $175 to design 6​ websites, then​ $175 is the marginal cost of producing the 6th Websites.

False

U.S. Workers​ World's Most Productive Americans work longer hours than those in most other rich nations. Americans also produce more per person during the​ year, but only part of the U.S. productivity growth can be explained by the longer hours Americans work. Americans also create more wealth per hour of work. U.S. employees worked an average of​ 1,804 hours in​ 2006, compared to​ 1,564.4 for the​ French, but far less than the​ 2,200 hours that Asians worked. But the Asian countries the average labor productivity is lower. The article defines productivity as​ ______. Real GDP per person is​ ______.

GDP divided by the number of people​ employed; real GDP divided by the population

Which of the following statements describes a change in the quantity supplied and which describes a change in supply​? I Farms are selling less chicken because the price of turkey has increased. II Farms are selling less chicken because the price of chicken has fallen. III Farms are selling more chicken because the price of chicken has risen. IV Farms are selling more chicken because the cost of chicken feed has fallen.

I and IV are changes in supply and II and III are changes in the quantity supplied

Which of the following is TRUE regarding​ markets? I. Economists define a market as a geographic location where trade occurs. II. A market enables buyers and sellers to get information about each other and to buy and sell from each other. III. Markets coordinate decisions through prices.

II and III

Choose the statement that is incorrect.

If a financial​ institution's net worth is​ positive, the institution must be solvent and liquid.

Choose the correct statement about purchasing power parity.

If purchasing power parity does not​ prevail, the demand for U.S. dollars changes and the supply of U.S. dollars changes.

Choose the statement that is incorrect. A. In the long​ run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate. .B. In the long​ run, a rise in the foreign price level brings dollar appreciation and a rise in the U.S. price level brings dollar depreciation. C. In the long​ run, the nominal exchange rate is a monetary phenomenon. D. In the long​ run, the nominal exchange rate is determined by the quantities of money in two countries.

In the long​ run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate.

The opportunity cost to produce 1 pretzel for James is 2 cookies. For​ Carolline, the opportunity cost to produce 1 pretzel is 3 cookies. From this​ information, we know that

James has a comparative advantage in pretzel production.

Deflation in Japan arose because​ _______.

Japan's money stock did not grow fast enough to accommodate the growth of potential GDP and a trend rise in velocity.

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

Draw a demand for money curve. Label it MD0. Draw a demand for money curve that shows the effect of a decrease in real GDP. Label it MD1. Draw a demand for money curve that shows the effect of financial innovation that decreases the demand for money and that follows the decrease in real GDP. Label it MD2. When real GDP​ decreases, ______.

MD1 to the left of MD0 MD2 to the left of MD1 a decrease in the demand for money occurs

Which of the following equations is incorrect​?

MPC ​ + MPS​ = ΔYD

The equation of exchange is​ ______ and it is true​ ______.

MV​ = PY​; by definition

Michael is an Internet service provider. On December​ 31, 2012, he bought an existing business with servers and a building worth ​$200,000. During his first year of​ operation, his business grew and he bought new servers for ​$300,000. The market value of some of his older servers fell by ​$100,000. Calculate​ Michael's gross​ investment, net​ investment, and depreciation during 2013.

Michael's gross investment during 2013 was ​$300,000. ​Michael's depreciation during 2013 was ​$100000. ​Michael's net investment during 2013 was ​$200,000.

Choose the statement that is incorrect.

Most economists believe that the​ Ricardo-Barro effect holds in the loanable funds market.

Assume that the graphs in this figure represent the demand and supply curves for coffee. What happens in this market if buyers expect the price of coffee to​ rise?

Panel​ (c)

ews release In May​ 2012, real personal consumption expenditures​ (PCE) was​ $9,588 billion and the PCE deflator was 115.4. In June​ 2012, real personal consumption expenditure was​ $9,576 billion and personal consumption expenditure was​ $11,062 billion. ​Source: Bureau of Economic​ Analysis, July​ 30, 2012 Calculate personal consumption expenditure in May 2012 and the PCE deflator in June 2012. Was the percentage change in real personal consumption expenditure greater or smaller than that in personal consumption​ expenditure?

Personal consumption expenditure in May 2012 was $11064 billion. The PCE deflator in June 2012 was 115.5 The percentage change in real personal consumption expenditure between May 2012 and June 2012 was −0.13 percent. The percentage change in personal consumption expenditure between May 2012 and June 2012 was −.03 percent. he percentage change in real personal consumption expenditure is GREATER than the percentage change in personal consumption expenditure.

Which of the following is an example of consumption expenditure​?

Rachel buying a TV.

Choose the statement that is incorrect.

Real GDP per person grows whenever real GDP grows.

Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this​ effect?

Research finds that consumption of olive oil reduces the risk of heart disease.

On January​ 1, 2014,​ Sophie's Sunlounge owned 4 tanning beds valued at​ $20,000. During​ 2014, Sophie's bought 3 new beds at a total cost of ​$10,000. At the end of the​ year, the market value of all of​ Sophie's beds was ​$27,000. Calculate​ Sophie's gross investment and depreciation during 2014.

Sophie's gross investment during 2014 was ​$10,000. ​Sophie's depreciation during 2014 was ​$3000.

Choose the statements concerning neoclassical growth theory that are true. 1. As incomes increase both the birth rate and the death rate decrease. 2. Neoclassical growth theory implies that growth rates and income levels per person around the globe will diverge. 3. Neoclassical growth theory states that growth in real GDP per person can persist indefinitely. 4. The rate of technological change influences the economic growth rate but economic growth does not influence the pace of technological change.

Statements 1 and 4 are correct.

Choose the correct statements. 1. Current chairman of the Fed is Alan Greenspan. 2. The president of the Federal Reserve Bank of New York is a member of the FOMC. 3. The FOMC meets approximately every six weeks. 4. The president of the San Francisco Fed is always a member of the FOMC.

Statements 2 and 3 are correct.

The Bureau of Labor Statistics reports six alternative measures of the unemployment rate. Choose the correct statements. a. U-4 is the official unemployment rate. b. U-1 measures those who are unemployed for 15 weeks or more. c. U-2 measures the job losers. d. U-6 measures those who are unemployed for 15 weeks or more.

Statements b and c are correct.

I​ = ______.

S​ + ​(T−G​) ​+ ​(M−X​)

Choose the statement that is incorrect.

The CPI calculation assumes that everyone shops at discount stores and no one shops at convenience stores

Suppose the United States goes from a​ free-trade policy to a​ no-trade policy with other countries. Which of the following is a result of this new​ policy?

The U.S. no longer consumes outside its production possibilities frontier

Russell studies instead of playing tennis. The opportunity cost to him of studying is

The forgone value of playing tennis.

Which of the following statements by Tom demonstrates that his buying plans obey the law of demand​?

The only thing​ that's changed is the price of​ textbooks: they've become more expensive and now​ I'm not buying as many.

Choose the statement about the Fed that is incorrect.

The policy decisions of the Federal Open Market Committee are implemented each month by a different Federal Reserve Bank.

Choose the statement about an increase in the population that is incorrect.

The production function shifts upward.

Which of the following will hold true if the market for cameras is in equilibrium at a price of​ $40?

The quantity of cameras produced will equal the quantity of cameras bought in the market.

The table gives information about the U.S. labor market in 2005. What is the unemployment​ rate?

The unemployment rate is 5.1 percent.

Choose the statement that is incorrect.

The unemployment rate is zero when the economy is at a business cycle peak.

The table shows the amounts held as the various components of M1 and M2. What are the values of M1 and​ M2?

The value of M1 is ​$295 billion. The value of M2 is ​$1110 billion.

Which of the following statements is false​?

Trade−offs do not apply when the consumers purchase a product for which there is excess​ supply, such as a stock clearance sale.

A high unemployment rate tells us that a large percentage of the labor force is​ unemployed, but it​ doesn't tell us why the unemployment rate is high. The​ ______ measure of unemployment tells us if people are taking longer than usual to find a job. The​ ______ measure of unemployment tells us if more people are economic​ part-time workers. The ________ measure of unemployment tells us if more unemployed people are job losers.

U-1; ​U-6 - U-5 U-2

Toyota and Honda Shift Production to North America Toyota plans to stop exporting the Lexus RX to North America from​ Japan, building all of the vehicles in North America. The company will invest​ $98.3 million to boost its production capacity. Honda Motor Co. will shift a major chunk of its manufacturing to North America and increase its production capacity by as much as 40 percent The decision by Toyota and Honda to build more cars in the United States influences the factor incomes that make up U.S. GDP by increasing​ ______.

U.S. compensation of employees and other factor incomes

Illegal Immigrants Flock to Youth Program Tens of thousands of young illegal immigrants applied to a program that could allow them to remain in the United States and work legally.​ "So many opportunities are going to open up​ now," said one Mexican​ student, who boasts a 3.95 GPA and hopes to study law. With 2 million illegal immigrants eligible to apply to the youth​ program, which of the following could not​ occur?

U.S. real GDP will decrease because the illegal immigrants will pay taxes and paying taxes decreases the quantity of labor supplied.

The real exchange rate is the relative price of​ _____ to​ _____.

U.S.-produced goods and​ services; foreign-produced goods and services

Mitsubishi Heavy Industries makes the wings of the new Boeing 787 Dreamliner in Japan. Toyota assembles cars for the U.S. market in Kentucky. Choose the correct statement.

When the wings are sent to the United​ States, their value appears as Japanese exports in calculating​ Japan's GDP.

Which of the following shifts the demand curve for​ oranges?

a decrease in the price of a pound of​ bananas, a substitute in consumption for oranges

Classify each of the following items as a final good or an intermediate​ good, and identify which is a component of consumption​ expenditure, investment, or government expenditure on goods and​ services: Item 1. A new airplanes bought by United Airlines Item 2. Coffee beans bought by Starbucks Item 3. Banking services bought by a student Item 4. A new battle ship bought by the U.S. navy Item 1 is​ ______ and item 2 is​ ______. Item 3 is​ ______ and item 4 is​ ______.

a final good that is investment; an intermediate good a final good that is consumption expenditure; a final good which is government expenditure

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

Nominal GDP is​ ______. Real GDP is​ ______.

a more precise name for GDP​; the value of final goods and services produced in a given year when valued at the prices of a reference base year

If the quantity demanded exceeds the quantity​ supplied, then there is

a shortage and the price is below the equilibrium price.

Mrs. Lovejoy decides to invest in companies which she believes are producing its goods based on the preferences of consumers. Mrs. Lovejoy is investing in companies that are

allocatively efficient.

During the 100 years from 1914 to​ 2014, real GDP per person in the United States grew at​ ______.

an average of 2 percent a year

Economic growth can be represented by

an outward shift of the production possibilities frontier ​(PPF​).

The graph shows the unemployment rate and the natural unemployment rate from 1980 to 2014. Draw a point on the Unemployment rate curve that shows a year in which the economy experiences full employment.

any point where the two lines cross

The law of demand implies​ that, other things remaining the​ same,

as the price of a cheeseburger​ rises, the quantity of cheeseburgers demanded will decrease.

A Classical macroeconomist believes that the economy is​ self-regulating and always​ _____.

at full employment

Ted quits his ​$60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his​ decision?

at least​ $60,000

A central bank is​ ______. The central bank in the United States is the​ ______.

a​ bank's bank and a public authority that regulates a​ nation's depository institutions and conducts monetary​ policy; Federal Reserve System

If the government increases its expenditure on goods and services and as a​ result, the money wage rate​ increases, the economy has experienced​ _______.

a​ demand-pull rise in the price level

Labor supply growth is influenced by all of the following except​_______.

changes in labor productivity

A​ ______ macroeconomist believes that the economy is​ self-regulating and always at full employment. A​ ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.

classical; Keynesian

Suppose people buy more of good 1 when the price of good 2 falls. These goods are

complements.

The components of aggregate expenditure that are influenced by real GDP are​ ______.

consumption expenditure and imports

The expenditure approach to measuring GDP sums together​ ______, and the largest component is​ ______.

consumption​ expenditure, investment, government expenditure on goods and​ services, and net​ exports; consumption expenditure

Stagflation occurs when​ _______.

costs increase

The tables describe an​ economy's labor market and its production function in 2014. In​ 2015, the population increases and labor hours supplied increase by 90 at each real wage rate. The​ economy's standard of living​ ______ in 2015 because​ ______.

decreased; real GDP per person is smaller in 2015 than in 2014

Suppose that the exchange rate risesrises from 0.75 euroseuros per U.S. dollar to 0.78 euroseuros per U.S. dollar. What is the effect of this change on the quantity of U.S. dollars that people plan to buy in the foreign exchange​ market? The quantity of U.S. dollars that people plan to buy in the foreign exchange market​ _______.

decreases and a movement upup along the demand curve for U.S. dollars occurs

Aggregate demand decreases if expected future​ income, inflation, or profits​ ______. And aggregate demand decreases if fiscal policy​ ______ government expenditure.

decreases; decreases

Aggregate demand decreases if monetary policy​ ______ the quantity of money and​ ______ interest rates.

decreases; increases

Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone​ dams, as more freeways are​ constructed, the marginal benefit of additional freeways​ ________ and the marginal cost of additional freeways​ ________.

decreases; increases

If the Fed raised the interest rate while the Brazilian interest rate remained at 8.75​ percent, the Brazilian real would​

depreciate by a smaller amount than if the Fed left the interest rate unchanged

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; excess reserves

Potential GDP is​ ______.

determined by the​ full-employment quantity of labor

The relationship between saving and​ _____, other things remaining the​ same, is called the saving function.

disposable income

The Brazilian real has appreciated 33 percent against the U.S. dollar and has pushed up the price of a Big Mac in Sao Paulo to​ $US4.60, higher than the New York price of​ $US3.99. Despite​ Brazil's interest rate being at 8.75 percent a year compared to the U.S. interest rate at near​ zero, foreign funds flowing into Brazil surged in October. Interest rate parity _________ hold between Brazil and the United States. The Brazilian real is expected to ___________ by ______ percent.

does depreciate 8.75 percent

The table provides some data on real GDP and the population of Atlantis in 2010 and 2011. If the growth rates of 2011 are maintained in future​ years, real GDP per person in Atlantis will​ ______.

double by 2025

Interest rate parity means​ ______.

equal rates of return

The supply of loanable funds is influenced by all of the following except ​______.

expected profit

The consequences of deflation include all of the following except​ _______.

falling real wage rates for workers with​ long-term wage contracts

Real GDP is the value of the​ _____ goods and services produced in a given year expressed in terms of the prices in​ _____ year. Nominal GDP is the value of the​ _____ goods and services produced in a given year expressed in terms of the prices of ​ _____ year.

final; a​ base; ​final; that same

Student who leave school in the spring and look for work are one source of ___________.

frictional unemployment

The figure illustrates​ Mary's production possibilities frontier. If Mary wants to move from point b to point c​, she must

give up some of good Y in order to obtain more of good X.

The balanced budget multiplier equals the change in equilibrium expenditure and real GDP that results from equal changes in​ _____ divided by the change in government expenditure.

government expenditure and​ lump-sum taxes

When the unemployment rate is less than the natural unemployment​ rate, real GDP is​ ______ than potential GDP and the output gap is​ ______.

greater; positive

Nation's Economic Pain Deepens A spike in the unemployment ratelong dash—the biggest in more than two decadeslong dash—raised new concerns that the economy is heading into a recession. The U.S. unemployment rate soared to​ 5.5% in May from​ 5% in Aprillong dash—much higher than forecasted. The surge marked the biggest​ one-month jump in unemployment since February​ 1986, and the​ 5.5% rate is the highest seen since October 2004. The unemployment rate in May 2008 is​ ______ the estimated natural unemployment rate. This implies that real GDP is​ ______ potential GDP at this time.

greater​ than; less than

According to new growth​ theory, ______.

growth can persist indefinitely

The basic economic problem of scarcity

has always existed and will continue to exist.

Exports and Imports Increase Real exports of goods and services increased 6.0 percent in the second​ quarter, compared with an increase of 4.4 percent in the first. Real imports of goods and services increased 2.9​ percent, compared with an increase of 3.1 percent. ​Source: Bureau of Economic​ Analysis, August​ 29, 2012 The changes in exports and imports reported here​ ______. Of the two quarters​ reported, exports and imports make the greater contribution to aggregate demand growth in the _________ quarter.

increase aggregate demand and have no effect on the quantity of real GDP demanded second quarter

An economy produces at point a on the PPF shown in the figure. A drought reduces the amount of wheat produced and the economy produces at point b. The opportunity cost of a unit of wheat​ ________.

increases

The Fed increasesincreases the quantity of money and all other things remain the same. In the short​ run, aggregate demand​ _______.

increases

If an economy experiences a decrease in the money​ supply, short-run unemployment

increases, and​ short-run output decreases.

Aggregate demand decreases if fiscal policy​ ______ taxes or​ ______ transfer payments.

increases; decreases

Aggregate demand decreases if the exchange rate​ ______ or foreign income ​______.

increases; decreases

When the Federal Reserve Bank increases the federal funds​ rate, other

interest rates​ rise, and​ consumption, firms' private investment and net exports decrease.

The revenue received from the sale of an additional unit of a product

is a marginal benefit to the firm.

A flexible exchange rate is one that​ _______.

is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank

The Federal Open Market Committee is the​ Fed's _____ committee.

main policy making

A decrease in the marginal propensity to import​ _______, everything else remaining the same.

makes the multiplier larger

An increase in income taxes​ _______, everything else remaining the same.

makes the multiplier smaller

Real GDP​ ______ indicator of the standard of living because​ ______.

might be an​ unreliable; the standard of living depends on many​ factors, some of which are not part of real GDP

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

When the market for a commodity is in​ equilibrium:

no economic agent will want to change their behavior.

The key idea of classical growth theory that leads to the dismal outcome is that​ ______.

no matter how much technological change​ occurs, real GDP per person is always pushed back toward the subsistence level

The demand for money is the relationship between the quantity of real money demanded and the _______________ when all other influences on the amount of money that people wish to hold remain the same. When the nominal interest rate​ rises, the opportunity cost of holding money​ ______ and the quantity of real money demanded​ ______.

nominal interest rate rises; decreases

To increase the money​ supply, the Fed may conduct

open market purchases or decrease the discount rate.

The U.S. dollar exchange rate fluctuates in part because a change in the U.S. interest rate differential changes the demand for U.S. dollars and the supply of U.S. dollars in​ ______ and a change in the expected future exchange rate changes the demand for U.S. dollars and the supply of U.S. dollars in​ ______.

opposite​ directions; opposite directions

Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a​ $20,000 bonus. These teachers would be exemplifying the economic idea that

people respond to economic incentives.

The business cycle is a​ _____ but​ _____ up-and-down movement of total​ _____ and other measures of economic activity.

periodic; irregular; production

Consider the figure showing supply curves for soft drinks. Suppose the economy is at point a. A decrease in the price of sugar used to make soft drinks is shown as a movement from point a to a point such as

point b.

According to mainstream business cycle​ theory, ______ grows at a steady rate and​ ______ 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

A substitute in production is a good that is​ _____ another​ good, and a complement in production is a good that is​ _____ another good.

produced in place​ of; produced together with

Suppose the country of Popcorn produces only jets and corn. If Popcorn cannot produce any more jets without giving up​ corn, we say that Popcorn has achieved

production efficiency.

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

In real business cycle​ theory, _______ are the main source of economic fluctuations.

random fluctuations in productivity

In the short​ run, ______ and​ ______ adjusts to achieve equilibrium.

real GDP determines the demand for money curve and the Fed determines the quantity of real money​ supplied; the nominal interest rate

New growth theory holds that​ _____ grows because of the choices people make in the pursuit of profit and that growth will​ _____.

real GDP per​ person; persist indefinitely

Short-run macroeconomic equilibrium occurs when the quantity of​ _____ demanded equals the quantity of​ _____ supplied at the point of intersection of the​ _____ curve and the​ _____ curve.

real​ GDP; real​ GDP; AD​; SAS

Stagflation is a combination of a​ ______ in the price level and​ ______ in real GDP.

rise; a decrease

In June 2011June 2011​, the exchange rate was 0.690.69 euroseuros per U.S. dollar. By June 2012June 2012​, the exchange rate had risenrisen to 0.790.79 euroseuros per U.S. dollar. As the exchange rate risesrises​, prices of​ U.S.-produced goods and services to foreigners​ ______ and the volume of U.S. exports​ ______.

rise;decrease

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​ ______. 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, falls, or remains the​ same; increases ​rises; increases,​ decreases, or remains the same

A​ ______ is a depository institution that accepts savings deposits and makes mostly​ home-purchase loans. A​ ______ is a depository institution owned by a social or economic group such as a​ firm's employees that accepts savings deposits and makes mostly personal loans.

savings​ bank; credit union

To keep the exchange rate pegged at its target​ level, the​ country's central bank must​ ______ U.S. dollars and​ ______ its foreign currency reserves.

sell; decrease

A critical function of the government in facilitating the operation of a market economy is

setting up and enforcing private property rights.

A means of payment is a method of ​ _____ a debt.

settling

A riserise in the price level​ _______.

shifts the AE curve downwarddownward and brings a movement upup along the AD curve

An increase in labor productivity​ ______.

shifts the demand for labor curve rightward and the production function upward

A bond is a promise to pay​ _____ sums of money on​ _____ dates.

specified; specified

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______.

the LAS curve​; does not change

When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______.

the SAS​ curve; increases

GDP Expands 11.4​ percent, Fastest in 13 Years ​China's gross domestic product grew 11.4 percent last year and marked a fifth year of​ double-digit growth. The increase was especially remarkable given that the United States is experiencing a slowdown due to the​ sub-prime crisis and housing slump. Citigroup estimates that each 1 percent drop in the U.S. economy will shave 1.3 percent off​ China's growth, because Americans are heavy users of Chinese products. In spite of the​ uncertainties, China is expected to post its sixth year of​ double-digit growth next year. According to the expenditure approach for calculating​ China's GDP,​ "each one percent drop in the U.S. economy will shave 1.3 percent off​ China's growth" because as the U.S. economy​ shrinks, ______. ​ China's ______ and​ China's real GDP decreases.

the United States imports less from​ China; exports decrease

Comparative advantage is

the ability to perform an activity at a lower opportunity cost than anyone else.

The quantity of U.S. dollars demanded in the foreign exchange market depends on many​ factors, the main ones being​ ______.

the exchange​ rate, world demand for U.S.​ exports, interest rates in the United States and other​ countries, and the expected future exchange rate

The marginal propensity to save is​ _______.

the fraction of a change in disposable income that is saved

The marginal propensity to consume is​ ______.

the fraction of a change in disposable income that is spent on consumption

An economy has a zero marginal tax rate. When real GDP​ increases, the change in consumption expenditure equals​ _______. When real GDP​ increases, the change in imports equals​ _______.

the marginal propensity to consume times ×the increase in real GDP the marginal propensity to import times ×the increase in real GDP

Gross domestic product is​ ______. A bakery uses flour to produce bread. When calculating​ GDP, we include​ ______, because when we add the value of the flour to the value of the loaf of bread to calculate​ GDP, the result is​ ______.

the market value of all the final goods and services produced within a country in a given time period only the value of the bread sold in a​ store; double counting

When cyclical unemployment increases and other things remain the​ same, ______.

the natural unemployment rate does not change

Choose the option that is an example of government expenditure.

the purchase of airline tickets by Congress to send members yo visit overseas troops

The demand for loanable funds is the relationship between​ _____ demanded and the​ _____ when all other influences on borrowing plans remain the same.

the quantity of loanable​ funds; real interest rate

With a rise in the money wage​ rate, ______.

the quantity that firms are willing to supply at each price level decreases

The current account is the record of receipts from​ _____ other​ countries, minus​ _____ other​ countries, plus the net amount of​ _____ received from and paid to other countries.

the sale of goods and services to other​ countries; payments for goods and services bought​ from; interest and transfers

Gross investment is​ ______. Net investment is​ ______.

the total amount spent on new​ capital; the change in the value of capital

Depository institutions have made innovations that have changed the composition of money in all of the following ways except​ ______.

the use of currency has fallen significantly

After you​ graduate, you have decided to accept a position working at the Bureau of Labor Statistics for​ $45,000.00 a year. The two other offers you received were working for Wal−Mart for​ $38,000 and working for Ernst and Young consulting for​ $42,000. Of these two​ offers, you would have preferred the job at Ernst and Young. What is the opportunity cost of accepting the position at the Bureau of Labor​ Statistics?

the​ $42,000 you would have been paid working for Ernst and Young

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

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 quantity of U.S. dollars supplied in the foreign exchange market depends on all of the following except​ ______.

world demand for U.S. exports

The marginal propensity to consume is equal to​ ______, and the marginal propensity to save is equal to​ ______.

ΔC ÷ ΔYD​; ΔS ÷ ΔYD

Tight Money​ Won't Slay​ Food, Energy Inflation ​It's important to differentiate between a general increase in priceslong dash—a situation in which aggregate demand exceeds their aggregate supplylong dash—and a relative price shock. For​ example, a specific shock to energy prices can become generalized if producers are able to pass on the higher costs. So​ far, global competition has made that difficult for​ companies, while higher input costs have largely been neutralized by rising labor productivity. Since​ 2003, core inflation has averaged less than 2 percent a year in the 30 major economies. History also suggests the​ Fed's gamble that slowing growth will shackle core inflation is a winning wager. The risk is that if U.S. consumers​ don't believe price increases will​ slow, growing inflation expectations may become​ self-fulfilling. Choose the correct statement.

​"Slowing growth" can reduce inflationary pressure if aggregate demand growth slows.

In an​ economy, there is ​$175 million in currency held outside​ banks, ​$175 million in​ traveler's checks, ​$225 million in currency held inside the​ banks, ​$100 million in checking​ deposits, ​$800 million in savings​ deposits, ​$1,000 million in time​ deposits, and ​$800 million in money market mutual funds and other deposits. The value of M1 is​ ______ and the value of M2 is​ ______.

​$450 ​million; ​$3,050 million

The price of a bag of corn chips is​ $3, and the price of a bottle of soda is​ $1. What is the relative price of a bottle of​ soda?

​1/3 bag of corn chips

Should Congress Pass a New Stimulus​ Bill? No, Cut Taxes and Curb Spending Instead The first stimulus was not too​ meager, but it was the wrong policy prescription. Anybody who studies economic history would know that government spending​ doesn't produce​ long-term sustainable​ growth, and jobs. The only sure way to perk up the job market is to cut taxes permanently and rein in public spending and excess regulation. ​Source: sgvtribune.com, September​ 11, 2010 Read the news​ clip, then answer the following questions. Economists from the​ ______ macroeconomic school of thought would recommend a second spending stimulus. Economists from the​ ______ macroeconomic school of thought would recommend a permanent tax cut.

​Keynesian; classical or monetarist

A typical business cycle can be described by the sequence​ ______.

​expansion, peak,​ recession, trough

Net exports of goods and services is the value of​ _____ of goods and services​ _____ the value of​ _____ of goods and services.

​exports; minus; imports

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

Between 2012 and​ 2014, the U.S. exchange rate​ ______ against the Japanese yen because the U.S. interest rate differential was expected to​ _______.

​rose; increase

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


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