Econ 102 Final
if a producer can use resources to produce either good A or good B, the A and B are
substitutes in production
real GDP is
the value of total production of all the nation's farms, factories, shops and offices measured in the prices of a single year
GRAPH...if the economy is at point A, which of the following is TRUE?
there is an inflationary gap
GRAPH...the interest rate in japan rises relative to the interest rate in the US. as a result,
there will be a change from point A to point E
GRAPH...If there is an increase in real GDP , there is a movement from point A
to point D
A lawn service is deciding whether to add an additional employee to its summer crew. the marginal cost of hiring this worker depends on the
total amount paid to only the new worker
the cost of inflation to society includes
unpredictable changes in the value of money
GRAPH...if buyers come to expect that the price of a bushel of wheat will rise in the future, but sellers do not, the current equilibrium price will
RISE
which of the following people would be counted as employed in the current population survey?
Rich, who is working 20 hours a week but wants a full-time job
If the money wage rate rises, then the
SAS curve shifts leftward
If the full-employment quantity of labor increases, then the
SAS curve shifts rightward and the LAS curve shifts rightward
GRAPH...as the economy adjusts toward equilibrium, the
SAS curve will shift leftward
The Fed buys $100 million of government securities from Bank A. What is the effect on Bank A's balance sheet?
Securities decrease by $100 million and reserves increase by $100 million
The Fed buys $100 million of government securities from Bank A. What is the effect on the Federal Reserve's balance sheet?
Securities increase by $100 million and reserves of Bank A increase by $100 million
Which of the following is a normative statement(opinion)?
States should require all the motorcycle riders to wear helmets to reduce the number of riders killed
all of the following are components of the expenditure approach to measuring GDP except
a Senator from Iowa being paid the monthly salary
the MPC is the fraction of
a change in disposable income that is consumed
a change in imports caused by rising US incomes is
a change in induced expenditure
All of the following shift the short-run aggregate supply curve EXCEPT
a change in the price level
Which of the following does NOT shift the short-run aggregate supply curve?
a change in the price level
which of the following statements is INCORRECT?
a classical macroeconomist believes that the money wage rate adjusts slowly
When part of the quantity of money is held in currency then
a currency drain occurs
Which of the following will shift the supply of loanable funds curve leftward?
a decrease in disposable income
which of the following events shifts the aggregate demand curve leftward?
a decrease in government expenditures on goods and services
which of the following shifts the demand for loanable funds curve leftward?
a decrease in the expected profit
If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was a
a flexible exchange rate
Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?
a lower real interest rate makes more investment projects profitable
an individual who has stopped looking for a job but has looked in the past and still wants a job is referred to as
a marginally attached worker
An increase in a nation's population results in
a movement along the production function
GRAPH...the distance between points S and T represent
a recession
GRAPH...the economy is initially at point B. If taxes increase, there is
a shift to AD2
GRAPH...If the money wage rate increases, there is
a shift to SAS0
A normative statement is
about what ought to be
GRAPH...if real GDP is greater than $15 trillion, inventories will be
above target levels so firms will decrease production
the use of purchasing power parity prices
accounts for differences in the prices of the sames goods in different countries when measuring real GDP
If Nike, an american corporation, produces sneakers in thailand this would
add to thailand's GDP but not to the US GDP
The marginal benefit is the
additional gain from one more unit of an activity
suppose the peso-dollar foreign exchange rate changes from 50 pesos per dollar to 30 pesos per dollar. Then the peso has APPRECIATED
against the dollar and the dollar has DEPRECIATED against the peso
the consumption function shows how much
all households plan to consume at each level of real disposable income
TABLE...if the current market value of the dollar is 75 francs
all three investors hold DOLLARS
TABLE...if the current market value of the dollar is 125 francs
all three investors hold FRANCS
the economy is at full employment when
all unemployment is frictional or structural
if the marginal cost of an activity exceeds the marginal benefit, then
an alternative action will be selected
according to purchasing power parity, a rise in inflation in the US, relative to the rest of the world will lead to
an exchange rate depreciation
An inducement to take a particular action is called
an incentive
which of the following will lead to an appreciation of the US dollar against the british pound?
an increase in british demand for imports from the US
Saving and investment that increase a nation's capital lead to
an increase in labor productivity
When the Fed lowers the federal funds rate, it can lead to
an increase in lending by banks
Which of the following changes does NOT shift the short-run aggregate supply curve?
an increase in the price level
which of the following increases aggregate demand?
an increase in the quantity of money
GRAPH...suppose the economy is at point a. a movement to point d would be the result of
an increase in the relative price of a soft drink
when real GDP exceeds potential GDP, then the economy has
an inflationary gap
the sale of $1 billion of securities to a bank or some other business by the Fed is an example of
an open market operation
the relative price of a good is
an opportunity cost
When the US exchange rate rises, foreign goods become LESS EXPENSIVE
and US imports INCREASE
TABLE...The short-run marcoeconomic equilibrium is a price level of 110
and a real GDP of $500
Suppose the economy was initially in a long-run equilibrium. Then the world economy expands so that foreign incomes rise. US aggregate demand INCREASES
and eventually the money wage rate RISES
If net taxes exceed government expenditures the government sector has a budget SURPLUS
and government saving is POSITIVE
GRAPH...After they have specialized and traded, compared to the initial situation, Mia's opportunity cost of pasta has INCREASED
and mario's opportunity cost of a pizza has INCREASED
When the population increases with no change in labor productivity, employment INCREASES
and potential GDP INCREASES
A small country is an international borrower and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country DOES NOT CHANGE
and the country's international borrowing DECREASES
A small country is an international lender and its domestic supply of loanable funds increases. Consequently the equilibrium quantity of loanable funds used in the country DOES NOT CHANGE
and the country's international lending INCREASES
in the absence of a Ricardo-Barro effect, a government budget deficit INCREASES
and the demand for loanable funds and DECREASES investment
TABLE...The government sector has a SURPLUS OF $50 BILLION
and the private sector has a SURPLUS OF $25 BILLION
When price levels rise, the quantity of nominal money demanded will INCREASE
and the quantity of real money demanded will STAY THE SAME
When labor productivity increases, the demand for labor curve SHIFTS RIGHTWARD
and the supply of labor curve DOES NOT SHIFT
TABLE...the value of M1 is $813 MILLION
and the value of M2 is $3303 BILLION
TABLE...the value of M1 is $910 BILLION
and the value of M2 is $3660 BILLION
If 100 Japanese yen buy more US dollars today than yesterday, the dollar has DEPRECIATED
and the yen has APPRECIATED
In the country of Darrowby, net domestic income at factor cost is $2.0 million. Gross domestic product is $3 million, and depreciation is $0.5 million. indirect taxes less subsidies
are $0.5 million
Checks are NOT money because they
are merely instructions to transfer money
In addition to saving and investment in capital, making an even larger contribution to long-term economic growth in real GDP per person
are technological advances
in the foreign exchange market, the supply curve for dollars slopes upwards because
as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for the increase in the quantity of imports
which of the following is true?
as the real interest rate increases, people increase the quantity they save
suppose that over a period of years the country of quasiland switched from being an agriculturally-based economy to a technologically-based economy. as a result, many people lost jobs because they LACKED the correct SKILLS.
as they search for new jobs, these people are part of structural unemployment
In the short run, when the Fed decreases the quantity of money
bond prices fall and the interest rate rises
In the short run, when the Fed increases the quantity of money
bond prices rise and the interest rate falls
Which of the following is TRUE regarding the real interest rate?
both I and II
a US firm buys a new industrial sewing machine from a company located in france. which of the following is true?
both I and II
suppose the Fed wants to fix the US dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can
buy dollars
suppose Mitsubishi Bank expects the exchange rate to be 125 yen per US dollar at the end of the year. If today's exchange rate is 120 yen per US dollar, Mitsubishi Bank
buys US dollars today because it expects profit from buying US dollars and holding them
GRAPH...suppose the demand for dollars temporarily decreases so that the demand curve shifts to D2. To maintain the target exchange rate, the Fed
can buy dollars
GRAPH...suppose the demand for dollars temporarily increase so that the demand curve shifts to D1. To maintain the target exchange rate, the Fed
can sell dollars
economic growth comes from
capital accumulation and technological advance
the term "foreign currency" refers to foreign
coins, notes AND bank deposits (ALL THREE)
the consumer price index (CPI)
compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period
the commodity substitution bias is that
consumers decrease the quantity they buy of goods whose relative prices rise and increase the quantity of goods whose relative price falls
if the marginal propensity to consume is 0.8, every $10 increase in disposable income increases
consumption expenditure by $8.00
the AD curve shows the sum of
consumption expenditure, investment, government expenditures on goods and services, and net exports
Marginal cost is the
cost of an increase in an activity
An incentive
could be either a reward or penalty
which of the following exchange rate policies uses a target exchange rate, but allows the target to change?
crawling peg
Depository institutions do all of the following EXCEPT
create required reserve ratios
A rise in the real interest rate
creates a movement upward along the demand for loanable funds curve
the monetary base is the sum of
currency and reserves of depository institutions
full employment occus when
cyclical unemployment is zero
If the world real interest rate falls, then a country that is an international lender
decreases the amount of its lending
according to the intertemporal substitution effect, a higher price level
decreases the quantity of real GDP demanded
An increase in the currency drain
decreases the size of the money multiplier
In the foreign exchange market, an increase in the world demand for US exports shifts the
demand curve for US dollars rightward
you notice that the price and quantity of wheat both decrease. this observation can be the result of the
demand curve for wheat shifting leftward
When a good is imported into the US, a
demand for foreign currencies and a supply of dollars are created
GRAPH...if the interest rate is 4 percent, there is a $0.1 trillion excess
demand for money and bond prices will fall
Suppose a British bank offers a 3 percent interest rate while a US bank offers a 7 percent interest rate. people must expect the US dollar will
depreciate 4 percent
a person quits her job in order to spend time looking for a BETTER-paying job. this type of unemployment is an example of
frictional unemployment
GRAPH...which movement reflects a decrease in population?
from point a to c
An increase in the quantity of capital increases THE SAS AND LAS
increase in the full-employment quantity of labor increases THE SAS AND LAS
if the Fed wants to depreciate the dollar against the yen, the Fed will
increase the supply of dollars by buying yen
an increase in the number of fast-food restaurants
increase the supply of fast-food meals
a normal good is a good for which demand
increase when income increases
intellectual property
is often protected by copyrights and patents
the intertemporal substitution effect of the price level on aggregate demand
is one reason that the aggregate demand curve has a negative slope
a new 2015 honda civic produced in 2015 and purchased in 2016
is part of GDP in 2015
the required reserve ratio
is the fraction of a bank's total deposits that is required to be held in reserves
When a bank has excess reserves
it can make loans AND create money
When the Fed is ADJUSTING THE AMOUNT OF MONEY IN CIRCULATION
it is CONDUCTING MONETARY POLICY
GRAPH...if firms expect profits will be higher in the future, to what point might the economy's move in the short run?
it shifts to a point such as C
with everything else the same, in the foreign exchange market the
larger the value of US exports, the greater is the quantity of dollars demanded
GRAPH...if the interest rate is 8 percent, people demand $0.1 trillion
less money than the quantity supplied and bond prices will rise
marginally attached workers fall into which of the following population categories?
not in the labor force
credit cards are
not part of money because they represent a loan of money to the user
which school of thought believes that real GDP always equals potential GDP
only classical
GRAPH...An increase in the expected profit would
only shift the demand for loanable curve rightward to a curve such as DLF1
If real GDP is $800 million and aggregate labor hours are 20 million, labor productivity is
$40 per hour
If velocity is 6 and the quantity of money is $2 trillion, which is nominal GDP?
$12 trillion
During 2014, the the country of Economia had a real GDP of $115 billion and the population was 0.9 billion. In 2013, real GDP was 105 billion and the population was 0.85 billion. In 2013, real GDP per person
$124
GRAPH...autonomous expenditure is equal to
$14 trillion
TABLE...above is the US balance of payments. The current account balance is
$140 billion
GRAPH...equilibrium expenditure is
$16 trillion
GRAPH...equilibrium real GDP is equal to
$16 trillion
GRAPH...Suppose that the money wage rate and the price level both fall by 10 percent. Firms will be willing to supply output equal to
$16.0 trillion
GRAPH...the aggregate demand curve is AD2, so the short-run equilibrium level of real GDP is
$16.5 trillion
TABLE...All entries are in dollars. The equilibrium level of real GDP is
$2,400
TABLE...as calculated by the income approach gross domestic product equals
$2,400
when disposable income equals $800 billion, planned consumption expenditure equals $600 billion, and when disposable income equals $1,000 billion, planned consumption expenditure equals $640 billion. what is planned saving when disposable income is $800 billion?
$200 billion
TABLE...Calculate the value of national saving
$25 million
the quantity of money in an economy is $9 million, and the velocity of circulation is 3. Nominal GDP in this economy is
$27 million
GRAPH...autonomous consumption equals
$4 trillion
if the price level is constant and the slope of the AE curve is 0.75, a decrease in government expenditures of $100 leads to a decrease in real GDP of
$400
GRAPH...at the equilibrium, induced expenditure is
$5 trillion
Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15 percent. How many loans can Bank A create at Bank A?
$50
TABLE...If the desired reserve ratio is 15 percent, Ralph's Bank has excess reserves of
$50
TABLE...If the bank's desired reserve ratio is 10 percent, how much does this bank have in excess reserves?
$60
In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's net investment totaled
-$100,000
The night before a midterm exam, you decide to go to the movies instead of studying for the exam. You score 60% on your exam. If you had studied the night before, you'd have scored 70%. What was the opportunity cost of your evening at the movies?
10 percent off of your grade
TABLE...which of the following is an example of a point that is unattainable?
10 units of good X and 16 units of good Y
Using the Rule of 70, if China's current growth rate of real GDP per person was 7 percent a year, how long would it take the country's real GDP per person to double?
10 years
if the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is
100/1000 *100 = 9.1 percent
if the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the employment-to-population ratio is
1000/1400 * 100 = 71.4 percent
If the number of people unemployed is 100, the number of people employed is 1000, and the working-age-population is 1400, the the labor force participation rate is
1100/1400 * 100 = 78.6 percent
GRAPH...when the economy is in a long-run equilibrium, the price level will be
120
GRAPH...an allocatively efficient use of resources requires that production and consumption of gasoline be
2 million gallons of gasoline per month
TABLE...What is this bank's actual reserve ratio?
20 percent
TABLE...Mini Bank's actual reserve ratio equals
25 percent
At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's gross investment for the year totaled
3 machines
Suppose a nation's population grows by 2 percent and, at the same time, its GDP grows by 5 percent. Approximately how fast will real GDP per person increase?
3 percent per year
TABLE...Which of the following is an example of a point that is inefficient?
38 chocolate bars and 0 cans of cola
TABLE...the allocatively efficient number of camel rides is
4 rides per day
in an economy, 42 million people are in the labor force, 38 million are employed, and 47 million are of working age. How many people are not in the labor force?
47-42=5
if the CPI was 132.5 at the end of last year and 140.2 at the end of this year, the inflation rate over these two years was
5.8 percent
the population of tiny town is 100 people and the labor force is made up of 75 people. if 5 of these people are unemployed, the unemployment rate is
5/75 * 100
if the price level in the US is 120, the price level in South Africa is 140, and the nominal exchange rate is 7 South African rands per dollar, then the real exchange rate is
6 South African goods per US good
If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately
6 percent
Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 9 yuan, the price of this airplane to china airlines is
855 million yuan
In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic growth rate from 2011 to 2012?
9 percent
Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 10 yuan, the price of this airplane to china airlines is
950 million yuan
changes in which of the following will affect the size of the multiplier?
I, II, and III
TABLE...which individuals are considered unemployed using the official U-3 unemployment rate?
A, B, and C
If higher inflation is expected in the future, then the
AD curve shifts rightward
an increase in US exports because of increasing foreign incomes represent
AN INCREASE IN AUTONOMOUS EXPENDITURE in the US
GRAPH...Suppose the economy is operating at point A. A moves to C could be explained by
AN INCREASE IN THE USE OF CREDIT CARDS
Last year the exchange rate between US dollars and Mexican pesos was 10 pesos per dollar. Today it is 11 pesos per dollar. Here the dollar,
APPRECIATED against the peso, and the peso DEPRECIATED against the dollar
Which of the following items are considered physical capital?
II and III
Investment is financed by which of the following?
II and III only
Which of the following ideas apply to the neoclassical growth theory?
Both I and II
agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour
Brenda has an absolute advantage in the production of X and Y
GRAPH...the one that will grow most rapidly in the future is most likely to be producing at point
C
Which of the following are included in the supply of loanable funds?
I, II and III
the law of demand concludes that a rise is the price of a golf ball
DECREASES the quantity demanded and CREATES A MOVEMENT up along the demand curve for golf balls
Which part of the Federal Reserve System meets every 6 weeks to determine the nation's monetary policy?
Federal Open Market Committee
when real GDP exceeds aggregate planned expenditure
GDP will decrease
An art museum decides to offer tours by having visitors listen to cassette tapes rather than have tour guides. the museum is answering the
HOW part of one of the two big economic questions
The components of aggregate expenditure include
I and II
which of the following directly creates growth in labor productivity?
I and II
read two statements below and indicate if they are true or false
I is false and II is true
GRAPH...as a result of a rightward shift in the demand curve, the equilibrium level of employment
INCREASES and the potential GDP INCREASES
The income earned by the people who sell the services of the factors of production CAPITAL is called
INTEREST
in 2009, just after taking office, President Obama approved an $800 billion stimulus package of tax cuts and increased government spending to combat the recession brought on by the financial crisis of 2007. Which group of economists most approved of President Obama's actions?
Keynesian Economists
When the US exchange rate falls, US goods become
LESS EXPENSIVE to foreign residents and US exports INCREASE
GRAPH...point d represents the point where planned expenditures are
LESS THAN real GDP
In the absence of the Ricardo-Barro effect, an increase in the government deficit results in a HIGHER real interest rate and a
LOWER equilibrium quantity of investment
the demand curve for US dollars slopes downward because as the dollar APPRECIATES, US goods become
MORE expensive to foreign residents, so they purchase fewer US goods, and the quantity of dollars demanded decreases
which school of though believes that recessions are the result of inappropriate monetary policy?
Monetarist
GRAPH...Which is the effect of an increase in the use of credit cards?
The demand for money curve would shift leftward to MD0
Which of the following is a normative statement?
The government's cuts in welfare spending impose an unfair hardship on the poor
Which of the following occurs while moving along a short-run aggregate supply curve?
The price level changes and the money wage rate is constant
as a result of the recession in 2008, the default risk increased. How did this change affect the loanbable funds market?
There was a leftward shift in the supply of loanable funds curve
When the monetary base increases by $2 billion, the quantity of money increases by $10 billion.
Thus, the money multiplier equals 5.
Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. the model that he is interested in has a stick price of $29,000. The fact that the price is quoted in dollars is an example of money used as a
UNIT OF ACCOUNT
An advance in technology increases the productivity of labor. As a result, the nation's production function shifts
UPWARD and the DEMAND FOR labor curve shifts rightward
suppose a deposit in new york earns 6 percent a year and a deposit in london earns 4 percent a year. Interest rate parity holds if the
US dollar depreciates by 2 percent a year
when people who are holding the money of some other country want to exchange it for US dollars, they DEMAND
US dollars and SUPPLY that other country's money
Suppose the US spends more on foreign goods and services than foreigners spend on our goods and services and the US sells no foreign assets. Then the
US must borrow an amount equal to imports minus exports
Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20 percent. How many deposits can Bank A create?
Zero, because Bank A has no excess reserves
suppose mail boxes etc. buys a new copier for its store for $1000. a year later, the firm wants to upgrade to a new copier, the old copier is worth $750. over the year the copier was used,
depreciation occured
according to the keynesian theory, the typical firm
does not change the prices immediately when aggregate demand fluctuates
all else being constant, autonomous expenditure
does not change with changes in real GDP
the AD curve slopes
downward due to the wealth and substitution effects
KEYNESIAN
economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment
CLASSICAL
economists believe that the economy is self-regulating and always at full employment
gross domestic product can be calculated
either by valuing the nation's output of goods and services or by valuing the income generated in the production process
which of the following would lead GDP to overstate economic welfare?
electric utilities that switch to burning coal because of higher natural gas prices and thereby create more acid rain pollution
the economic resource that organizes the use of other economic resources is called
entrepreneurship
when there is a surplus in the market, the quantity sold is
equal to the quantity demanded
full employment corresponds to
equilibrium in the labor market, with actual GDP being equal to potential GDP
a factor determining the supply of US dollars in the foreign exchange market is the
expected future exchange rate
suppose a bond promises to pay its holder $100 a year forever. The interest rate on the bond rises from 4 percent to 5 percent. The price of the bond
falls from $2,500 to $2,000
FIGURE...which figure shows the effect of an increase in the price of bananas, a substitute for oranges?
figure A
The funds used to buy and operate physical capital are
financial capital
the business cycle refers to
fluctuations in the level of real GDP around potential GDP
GRAPH...which movement reflects how consumers would react to an increase in the price of a fruit snack that is expected to occur in the future?
from point a to d
in one day, brandon can either plow 10 acres or plant 20 acres. In one day, christopher can either plow 14 acres or plant 14 acres. Brandon and christopher can
gain from exchange if brandon specializes in planting and christopher specializes in plowing
The calculation of the final goods and services sold in an economy would NOT include
general motors' purchases of tires for new automobiles
the US fiscal policy implemented in 2008 was an attempt to
give billions of dollars to businesses and low- and middle- income Americans in order to stimulate business investment and consumption expenditure, and thereby INCREASING AD
The Ricardo-Barro effect says that
government budget deficit have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government
What could Keynes have meant by his now famous statement, "in the long run we are all dead?"
government intervention in the economy is necessary in times of recession because an economy rarely restores itself to full employment
the crowding-out effect refers to
government investment crowding out private investment
the lower the exchange rate today, ceteris paribus the
greater is the expected profit from buying US dollars today and holding them
in september 2012 the US unemployment rate was 7.8 percent while the natural unemployment rate was 6 percent. the us economoy
had a negative output gap (6-7.8)
TABLE...when the price level is 120, the economy
has a recessionary gap
you observe that in the market for coffee that both the equilibrium price and equilibrium quantity have decreased. you predict that the demand for coffee
has decreased with no change in the supply of coffee
you observe that in the market for coffee that both the equilibrium price of coffee and the equilibrium quantity have increased. you predict that the demand for coffee
has increased with no change in the supply of coffee
When a government has a budget surplus, the surplus
helps finance investment
GRAPH...The opportunity cost of producing another computer is
higher at B
the aggregate demand curve shows that, if other factors are held constant, a
higher price level results in a decrease in the quantity of real GDP demanded
FIGURE...flow b represents
household purchases of goods and services
According to the Ricardo-Barro effect
households increase their personal saving when governments run budget deficits
Which of the following is a macroeconomic issue
how federal government budget deficits affect interest rates
agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. There can be gains from exchange
if Agnes specializes in the production of X and brenda specializes in the production of Y
A Keynesian economist believes that
if the economy was left alone, it would rarely operate at full employment
which of the following is NOT an autonomous expenditure in the aggregate expenditures model?
imports
If an economy has a velocity of circulation of 3, then
in a year the average dollar is exchanged 3 times to purchase goods and services in GDP
In a diagram with the consumption function, the 45-DEGREE LINE shows all points where disposable
income equals consumption expenditures
which of the following lists has variables that all shift a good's demand curve?
income, preferences, number of buyers, price of complementary good
TABLE...all entries are in dollars. if investment increased by $26 to $51 then equilibrium expenditure will
increase by $100
TABLE...which person is cyclically unemployed
none of the people
doctors find that one aspirin per day reduces the risk of heart attacks. demand for aspirin will
increase, so that equilibrium price and equilibrium quantity will increase
An increase in government expenditure on goods and services
increases aggregate demand
marginal cost
increases as more is produced
An increase in education and training
increases labor productivity
TABLE...An increase in population changes the labor supply by 20 billion hours at each real wage rate. Potential GDP
increases to $18 trillion
The quantity of real money demanded is
independent of the price level
If the united states can increase its production of automobiles without decreasing its production of any other good, the united states must have been producing at a point
inside its PPF
The SAS curve and the LAS curve
intersect at potential GDP
an example of the new goods bias in the CPI is the
introduction of hybrid automobiles, vehicles that were not made until recently
in the national income accounts, the purchase of a new house counts as
investment
when aggregate planned expenditures is less than real GDP, unplanned
investment occurs
Moving from one point on the production possibilities frontier to another
involves a tradeoff and incurs an opportunity cost
TABLE...according to these data, as calculated by the expenditure approach, the value of GDP
is 2100 billion
real GDP
is equal to aggregate income
the quantity of real GDP demanded equals $16.2 trillion when the price level is 90. If the price level rises to 95, the quantity of real GDP demanded equals
less than $16.2 trillion
a decrease in the demand for beef because of concerns over cholesterol results in
lower beef prices
resource use is allocatively efficient if the
marginal cost of what the resource produces is equal the the marginal benefit of what is produced
the most direct way in which eliminates the need for a double coincidence of wants is through its use as a
medium of exchange
Aside from being a means of payment, the other functions of money are
medium of exchange, unit of account, and store of value
In broad terms the difference between microeconomics and macroeconomics is that
microeconomics studies decisions of individual people and firms and macroeconomics studies the entire national economy
controlling the quantity of money and interest rates to influence aggregate economic activity is called
monetary policy
If you have $1,000 of money in the bank and the price level rises by 5 percent, your
money is worth less in terms of what it can purchase
in the short-run, real GDP can be greater than or less than potential GDP because in the short run the
money wage rate is fixed
GRAPH...The price level rises by 10. The wealth effect will help
move the economy to point C
GRAPH...The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will
move to a point such as Z
if the marginal propensity to import increases, then the
multiplier will decrease in value
A store remains open from 8am to 4pm each weekday. The store owner is deciding whether to stay open an extra hour each evening. The owner's marginal benefit
must be greater than or equal to the owner's marginal cost if the owner decides to stay open
which of the following is true regarding marginal benefit?
neither I or II
the sum of compensation to employees, rental income, corporate profits, net interest, and proprietors' income is
net domestic income at factor cost
the capital stock increases whenever
net investment is positive
the biases in the CPI include the
new goods, quality change, and substitution biases
the MPS equals the ratio of
none of the above answers is correct
In 2013, ozzie purchased a 2010 ford escort from his neighbor, purchased a 2009 camry from toyota, bought a 2013 new ford, and sold his 2002 dodge caravan. which of these transactions will be included in GDP in 2013?
only the purchase of the Ford
Which of the following is a positive statement (factual)?
our planet is warming because of an increased carbon dioxide buildup in the atmosphere
Entrepreneurship do all of the following EXCEPT
own all the other resources used in the production process
When a farmer decides to raise hogs instead of cattle, the farmer is answering the WHAT
part of one of the two big economic questions
TABLE...Suppose that the interest rate is equal to 6 percent. The effect of this interest rate in the money market is that
people buy bonds and the interest rate falls
GRAPH...the shift in the demand curve for US dollars from D0 to D1 could occur when
people expect that the dollar will appreciate
GRAPH...the shift in the demand curve for US dollars from D0 to D2 could occur when
people expect that the dollar will depreciate
which of the following is NOT included in the working-age population?
people in prison
TABLE...suppose that the interest rate is equal to 3 percent. the effect of this interest rate in the money market is that
people sell bonds and interest rate rises
A recent survey by India's central bank reported that spending plans by firms on large new projects fell by 46 percent in the year ending March 2012, compared with the prior year. This decrease will most directly impact
physical capital growth
german factory with cameras....
plus 10 cameras
gross private domestic investment is all purchases of newly produced business capital goods and buildings
plus the change in business inventories plus residential construction
GRAPH...which point represents the under use of resources?
point G
the SAS curve shifts if there is a change in
potential GDP
the maximum amount of production that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation is called
potential GDP
aggregate demand is the relationship between the quantity of real GDP demanded and the
price level
suppose the consumer price index is 143.6. what does this number mean?
prices rose 43.6 percent over the reference base period, on average
the term "crowding out" relates to the decrease in
private investment from a government budget deficit
U.S. investment is financed from
private saving, government budget surpluses, and borrowing from the rest of the world
cross domestic product is the total MARKET VALUE OF ALL FINAL GOODS AND SERVICES
produced within a country in a given time period
the rights of an owner to use and exchange property are
property rights
arbitrage in the foreign exchange market, international loans market, and goods markets results in
purchasing power parity, interest rate parity and law of one price
the existence of a shortage
pushes the price up
The real wage rate measures the
quantity of goods and services that an hour of work will buy
If the price level rises by 5 percent and workers' money wage rates remain constant, firms'
quantity of labor demanded will increase
according to the quantity theory of money, in the long run, changes in the price level are the result of changes in the
quantity of money
as the price of a pound of peanuts falls, the
quantity of peanuts supplied decreases
in the short-run macroeconomic equilibrium
real GDP and the price level are determined by short-run aggregate supply and aggregate demand
An aggregate production function shows the relationship between
real GDP and the quantity of labor employed
Labor productivity is
real GDP per hour of labor
if the price of a candy bar is $1 and the price of a fast food meal is $5, then the
relative price of a fast food meal is 5 candy bars per fast food meal
when the nominal interest rate rises, the opportunity cost of holding money
rises and people hold less money
when disposable income equals consumption expenditure, then
saving is zero
In the loanable funds market, the supply comes from
saving, the government budget surplus and international borrowing
The fact that wants cannot be fully satisfied with available resources reflects the definition of
scarcity
GRAPH...An increase in the monetary base would create a change such as a
shift from the supply of money curve MS0 to the supply of money curve MS1
GRAPH...A decrease in the monetary base would create a change such as a
shift from the supply of money curve MS1 to the supply of money curve MS0
an increase in the nation's capital stock will
shift the PPF outward
GRAPH...Technological progress that increases the expected profit will
shift the demand for loanable funds curve rightward
GRAPH...new expectations of booming business conditions and a higher expected profit will
shift the demand for loanable funds curve rightward
GRAPH...An economic expansion that raises disposable income and the expected profit would
shift the supply of loanable funds curve rightward to a curve such as SLF1, and shift the demand for loanable funds curve rightward to a curve such as DLF1
greater optimism about the expected profits from investment projects
shifts the demand for loanable funds curve rightward
in a short-run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate demand does not change, then the
short-run aggregate supply curve will shift rightward as the money wage rate falls
The short-run aggregate supply curve
shows the relationship between aggregate production and the price level holding constant potential GDP and all resource prices
the higher the exchange rate today, the
smaller is the expected profit from buying US dollars today and holding them
The larger the public's currency drain from the banking system, the
smaller is the money multiplier
which of the following items is NOT part of government expenditure on goods and services in the GDP accounts?
social security expenditures
the demand for mexican tomatoes by an american food grocery chain creates a
supply of US dollars
GRAPH...if the price is 48 then there is a
surplus of 200
GRAPH...at a price of $10 there is a
surplus of 400 units
GRAPH...suppose firms expect profits to increase and decide to increase investment. as a result
the AE curve shifts upward to a curve such as AE2
the slope of the saving function is equal to
the MPS
suppose the price of a football is $20 and the price of a basketball is $10.
the RELATIVE PRICE of a football is 2 BASKETBALLS PER FOOTBALL
If the money prices of resources change
the SAS curve shifts
if the People's bank of china adopted a flexible exchange rate policy
the US dollar would depreciate
GRAPH...The shift in the supply curve for US dollars for S0 to S1 could occur when
the US interest rate differential increases
if firms set prices and then keep them fixed for a period of time, their fixed prices imply that
the aggregate price level is fixed and that aggregate demand determines the quantity of goods and services sold
For a commercial bank, the term "reserves" refers to
the cash in its vaults and its deposits at the Federal Reserve
which of the following does NOT occur as the economy moves from an expansion to recession?
the change in planned spending exceeds the change in real GDP
an opportunity cost of economic growth is
the decrease in production of consumption goods in the present time period
if the Federal Reserve increases interest rates
the demand curve for US dollars shifts rightward and the supply curve of US dollars shifts leftward
airbus is a european jet airline producer. indian airlines wants to buy 23 airbus planes from airbus, due to increased demand for world travel. as a result
the demand curve for european euros and the supply curve for indian rupees both shift rightward
if the european central bank increases interest rates
the demand curve for european euros shifts rightward and the supply curve of european euros shifts leftward
GRAPH...What is the effect of an increase in financial innovation such as the introduction of ATMs?
the demand for money curve would shift leftward to MD0
what happens to the demand for xbox games if the price of an xbox falls?
the demand for xbox games increases because the price of a complement falls
Because of the choices people make in the pursuit of profit, new growth theory argues that
the economy can enjoy persisting economic growth
a classical economist believes that
the economy is self-regulating and always at full employment
A monetarist economist believes that
the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic
GRAPH...if the economy is at point A, which of the following is TRUE?
the economy might be at point A as a result of a recent cut in the tax rate
When an increase in aggregate demand exceeds the increase in aggregate supply
the economy will experience inflation as the price level rises
GRAPH...the shift in the supply curve for US dollars for S0 to S2 could occur when
the expected future exchange rate falls
GRAPH...the shift in the supply curve for US dollars for S0 to S1 could occur when
the expected future exchange rate rises
the opportunity cost of holding money refers to
the interest that could have been earned if the money balances had been changed into an interest-bearing asset
a country's balance of payments accounts records
the international trading, borrowing, and lending positions of a country over a period of time
a rise in the price of a good causes producers to supply more of the good. this statement illustrates
the law of supply
when cyclical unemployment increases and other things remain the same,
the natural unemployment rates does not change
Suppose that you took out a $1000 loan in Jan. and had to pay $75 in annual interest. During the year, inflation was 6 percent. Which of the followings statements is correct?
the nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent
according to the quantity theory of money, in the long run, an increase in the quantity of money results in an equal percentage increase in
the price level
An aggregate supply curve depicts the relationship between
the price level and the quantity of real GDP supplied
which of the following does not help organize trade?
the production possibilities frontier
the supply of real GDP is a function of
the quantities of labor, capital, and the state of technology
a relative price is
the ratio of one price to another price
twenty years ago a stove cost $300 and refrigerator cost $1,500. today a stove cost $600, while a refrigerator costs $1,800. which of the following statements is true?
the relative price of a stove has increased
the PPF shifts if
the resources available to the nation change
GRAPH...the interest rate in japan rises relative to the interest rate in the US. this change INCREASES
the supply of dollars and the market moves from point B to point C
GRAPH...the economy is at point a on SLF0. What happens if disposable income decreases?
the supply of loanable funds curve would shift leftward to a curve such as SLF1
GRAPH...the economy is at point a on SLF0. what happens if real wealth decreases?
the supply of loanable funds curve would shift rightward to a curve such as SLF2
the circular flow diagram shows that
the total amount of income generated by the economy equals the total purchases of final goods and services
an economy is at full employment when
the unemployment rate equals the natural unemployment rate
the aggregate production function shows that an economy increases its real GDP in the short run by
using more labor
in the very short term, planned investment DOES NOT CHANGE
when GDP changes and planned consumption expenditure CHANGES when GDP changes
GRAPH...negative saving occurs
when disposable income is $10 trillion
