EC 202 Final
If the real interest rate decreases...
... investment will increase, and the AD curve will shift to the right
I am deciding how large of a house to build. I am willing to pay $200 per square foot for the first 1,000 square feet, $150 per square foot for the next 1,000 square feet, and $100 per square foot for all additional square footage. The Bluth company has been contracted to build my home. They charge $100 per square foot for the next 1,000 square feet, then all remaining square footage is priced at $125 per square foot. How large of a house will I choose to build?
1,000 square feet
The newly formed nation of Schrute Farms has a nominal GDP of $5,000 and a real GDP of $4,500 in year 1. In year 2, nominal GDP is $6,000, while real GDP is $5,000. What was the growth rate of nominal GDP of Schrute Farms?
20%
You receive a $500 bonus from your job. You are excited to receive this bonus and go out with your friends that night and spend $100 of it. What is your marginal propensity to save?
80%
Assume electric scooters are a normal good and that scooters and bicycles are substitutes Which of the following would not cause the demand for electric scooters to increase?
A bunch of new firms that make electric scooters enter the market
Beer is a normal good for Eric. As a result of increased government regulations, the price of beer increases. What do we expect to happen to Eric's demand for beer?
A decrease in quantity demanded (movement left along the demand curve)
Which of the following meets the economic definition of a shortage?
A price cap on bourbon leads to long lines outside of the stores that sell bourbon.
Which statement best illustrates the concept of diminishing marginal utility?
A typical consumer will receive less satisfaction from consuming the third slice of pizza for lunch than from the second slice.
Basic theory suggests that minimum wage will decrease employment when the minimum wage is ______ the equilibrium wage. This is because ______.
Above ; Demand slopes down
There is a recession, and the government tries to use fiscal policy to move the country back to long-run full employment GDP. The government sets its fiscal policy assuming there will be no crowding out. However, their assumption was incorrect, and some crowding out does occur. When the government's fiscal policy is implemented, what actually happens?
Actual GDP is below long-run full employment GDP
Which of the following statements is true?
Aggregate demand slopes down. One reason for this is that, as prices increase, the buying power of cash decreases.
Suppose there is a sudden increase in consumer confidence and, as a result, there is an increase in consumer spending and an increase in aggregate demand. According to the Self-Correcting View of macroeconomics, what will happen in the long run?
Aggregate supply will decrease
Which of the following is an example of contractionary fiscal policy?
An increase in taxes
Which of the following is the best way of stating the Law of Demand?
As price increases, quantity demanded will decrease
Suppose a bank has $100 in deposits. How would a change in the reserve ratio from 10% to 20% affect the money supply?
Decreases money supply by $500
Restaurant meals are a normal good for Julio. If Julio's income goes down, what do we expect to happen to his demand for restaurant meals?
Demand shifts left
American consumers purchase lots of items made in Europe. Suppose incomes in the United States increase. How will this affect the demand for Euros?
Demand shifts out
Suppose the government engages in expansionary fiscal policy, increasing government spending through borrowing more. What effect does this have on the loanable funds market?
Demand shifts right
Pfizer is considering if it should invest in the development of a new drug that treats a rare condition. If only people in the United States bought the drug, Pfizer couldn't make enough money to pay for the investment. However, Pfizer can sell the drug to people all over the world. This means they earn enough money to pay for their investment and turn a profit. As a result, Pfizer develops the drug and sells it all over the world. Which benefit of international trade does this situation describe?
Economies of Scale
Which of the following is considered a part of US GDP?
I hire a private chef to cook dinner for my family
Initially, the market for salmon is in equilibrium with a price of $10 and a quantity of 5,000. A scientific study finds that people who eat salmon tend to live longer. As a result we expect equilibrium price to _______ and equilibrium quantity to _______.
Increase ; Increase
There is an increase in the transaction demand for money. As a result, the interest rate will ______ and the quantity of money supplied will ______
Increase ; be unaffected
When the Fed exercises open market operations and sells bonds to banks, interest rates ______ and investment ______
Increase ; decreases
Suppose all MSU employees receive a $100 decrease in their taxes. Professor Smith has a marginal propensity to consume of 80%. How will this impact his consumption?
Increase by $80
The Fed successfully conducts expansionary monetary policy. As a result, GDP ______, and the price level ______
Increases ; increases
The Fed decides to decrease the money supply. Which of the following is most likely to happen?
Investment decreases
Jake is deciding how many tacos to eat. Jake gets diminishing marginal benefits from tacos. Tacos cost $2 each. Which of the following statements is true?
Jake should continue to eat tacos until the marginal benefit of the last taco eaten is $2
Which of the following is not a component of Gross Investment?
McDonald's buys potatoes to make into French fries
Which of the following individuals is cyclically unemployed?
Mike loses his job when his employer has a reduction in demand during a recession
Which of the following will result in a productivity increase?
More people attend college
Movie theaters are losing lots of money, so they decide to raise ticket prices. Regarding demand for movie tickets, this is a
Movement up and to the left along the demand curve
How would we expect a federal subsidy on milk to affect the supply of milk?
Outward shift of the supply curve
Peanut butter and jelly are complements. The price of jelly increases. Which of the following statements is true?
Price and quantity of peanut butter decrease
What would we expect to happen to equilibrium price and quantity in the peanut butter market after flooding destroys a large portion of the peanut crop?
Price increases and quantity decreases
Relative to a no-tariff free-trade outcome, which of the following is true about a country that implements tariffs?
Prices are higher and quantity produced is higher
Consider the small nation of Spartania, which is considering moving from an autarchy (no international trade) to allowing international trade. Suppose the "World" price of oil is greater than the equilibrium "autarchy" price of oil. Which of the following statements is true about the potential transition from autarchy to free-trade?
Producers are better off and consumers are worse off
In 2016, nominal GDP was $100. From 2016 to 2017, prices of all goods increased by 10%. In 2017, nominal GDP was $90. Regarding changes between 2016 and 2017, which of the following is true?
Real GDP decreased
Suppose interest rates in the United States increase. Which of the following statements is definitely true?
Relative to other currencies, the dollar will get more expensive
Where is labor exchanged in the circular flow model?
Resource Market
Belize maintains a fixed exchange rate and pegs its currency to the US dollars. A sudden decrease in tourism leads to a decline in Americans traveling to Belize on vacation. Which of the following represents an activity that the Belize government would likely undertake to maintain a fixed exchange rate?
Sell US dollars for Belize currency
At a price of $100 per ticket, there are 12,000 people wanting to buy tickets to the game and 16,000 people wanting to sell tickets to the game. What do we expect to happen?
Some sellers will offer to sell for less than $100 per ticket
Which of the following is an example of a productivity improvement?
Someone invents a new way of generating wind power
If Spartania is an autarchy (meaning it does not have any international trade), the price of corn is $3. The equilibrium world price of corn is $5. Spartania has decided to allow the international trade of corn. Which of the following is true?
Spartania will export corn
Which of the following statements accurately describes the slope of a supply curve?
Supply always slopes up
Define T as the tax multiplier and G as the government spending multiplier. Which of the following statements is true?
T < G
Which of the following is not included in the expenditures approach of calculating GDP?
Taxes (consumption, net exports, government spending are included in the expenditures approach of calculating GDP)
In real business cycle theory, which of the following is the driving force of macroeconomic instability?
Technology changes and innovation
A bank sees the value of one of its investments increase. The bank wants to maintain its leverage ratio. Which of the following do we expect to happen?
The bank increases its debt
Samsung makes televisions in China, sells them to the US for $1,400, and uses that income to buy US savings bonds ($600) and hire an American engineer to work temporarily in Japan ($400). How does that affect the US balance of payments?
The current account decreases by $1,000 and the financial account increases by $600.
In the market for grills, supply decreases and demand increases. What effect do these supply and demand changes have on the equilibrium price and quantity of a grill?
The equilibrium price would increase, but the effect on the equilibrium quantity is uncertain.
During the Great Recession, the government borrowed large sums of money to spend on expansionary fiscal policy, including tax cuts and increases in government spending. Some economists were concerned about the effects of crowding out. Which of the following statements would most closely reflect their viewpoint?
The increase in borrowing will cause interest rates to increase, which will reduce private investment
In the mainstream view, monetary policy is not very effective during a severe recession. Why?
The liquidity trap prevents monetary from causing additional investment spending
Which of the following best describes marginal benefit?
The maximum amount a consumer is willing to pay for one more unit of a good or service
Japan and the United States are engaged in a system of flexible exchange rates. If fewer people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?
The price of Yen will decrease due to an inward shift of the demand curve
Which of the following is an example of a reason why the supply curve for vape pens slopes up?
When the price of vape pens increases, more companies are able to profit off of selling them and decide to enter the market
Which of the following should be included as part of the GDP of the United States?
You eat dinner at a restaurant
Ethanol is a major ingredient in hand sanitizer. Suppose the price of ethanol increases. Regarding the market for hand sanitizers, this will cause
a leftward shift of the supply curve
The Federal Reserve System regulates the money supply primarily by _____
altering the reserves of commercial banks, largely through sales and purchases of government bonds
When the Fed's Open Markets Committee states its target federal funds rate, it is referring to the short-term interest rate that:
banks pay to borrow money from each other
If investment demanded is higher than equilibrium, to achieve the long-run goal of a noninflationary, full-employment output in the economy, the Fed should try to
decrease aggregate demand by increasing the interest rate
The United States runs a current account _____ and a financial account _____.
deficit ; surplus
Money functions as a store of value if it allows you to
delay purchases until you want goods and services
Suppose a bank sees the value of its investments go up. As a result, its equity will _____. If the bank wishes to maintain its leverage ratio, it must increase its _____.
increase ; debt
Assume that the reserve requirement is 50%. If the Federal Reserve buys $30 million in government securities from the general public, the money supply will ________.
increase by $60 million
The best example of a "cyclically unemployed" worker is one who
is laid off during a recessionary period in the economy
Contractionary monetary policy is intended to lead to
lower aggregate demand
Social security is an example of
mandatory spending
Suppose a shock in the economy leads to an increase in the demand for loanable funds. How does this impact the investment demanded? (Hint: it may help to graph the loanable funds market)
movement up the demand curve
Relative to the time period from 1000-1500, worldwide economic growth from 1700-1900 was
much higher
For purposes of calculating the unemployment rate, full-time homemakers and retirees are classified as
not in the labor force
James makes $80,000 per year and pays $20,000 in taxes. Emma makes $32,000 per year and pays $8,000 in taxes. This tax system is
proportional
The line representing money demand ______ and the line representing money supply ______
slopes down ; is vertical
Due to a natural disaster, the price of coffee goes up. Following this price increase, you observe an increase in the number of bagels sold. This suggests that bagels and coffee are
substitutes
This question regards the currency market for British pounds and US dollars. After the Brexit referendum, individuals and banks decided they wanted to hold fewer pounds. As a result,
the price of the British pound (in dollars) went down
A vertical money supply curve reflects the fact that
the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes
When tariffs are imposed, a deadweight loss exists because
there are instances where consumers are willing to pay the world price for a good but do not buy the good because they are unwilling to pay the tariff
In the Aggregate Expenditures Model, an expansionary gap exists when
unemployment is below the natural rate
A new bike costs $40. Lana is willing to pay $50 for it. She buys the bike. What is her consumer surplus?
$10
Everyone in the economy has the same marginal propensity to consume. Your receive a $100 bonus and spend $50 of it. What is the total increase in expenditures in the economy?
$100
The current USD - Euro exchange rate is $1.00 to 0.90 Euros. A pound of Parmesan cheese costs 10 euros. Rounded to the nearest cent, what is that price in US dollars?
$11.11
Andrea can produce either 10 milkshakes or 20 hamburgers. Brian can produce either 3 milkshakes or 1 hamburger. Which of the following statements is true?
Brian has a comparative advantage at making milkshakes