ECON 131 MACROECONOMICS FINAL

If the consumer price index falls from 1.40 to 1.35 in a year, what is the deflation rate? Deflation rate: (year 1- year 2)/ Year 1 x 100

3.57%

If the population of the U.S is 260 Mil, the labor force is 130 mil. and 120 mil. workers are employed, the unemployedment rate is (Labor force - employed)=, (result/ labor force)x100=

7.7%

Which of the following events would cause a rightward shift in the market supply curve for automobiles?

A technological improvement which reduces the cost of production.

Macro equilibrium:

Always occurs at the optimal price level.

A budget surplus is:

An excess of government revenues over government expenditures in a given time period.

Suppose that U.S. debt is $17 trillion at the beginning of the fiscal year. During the fiscal year, the government spending is $5 trillion and tax revenues equal $3.5 trillion. What is the annual budget balance? Show the equation and solution.

Annual budget balance is Tax revenue- Gov. SPending 3.5-5= -1.5 trillion dollars

Explain the difference between automatic stabilizers and discretionary fiscal policy measures. Provide an example of each.

Automatic Stabilizers are tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation. For example, unemployment insurance and food stamps. Discretionary fiscal policy is when the government passes a new law that explicitly changes overall tax or spending levels with the intent of influencing the level of overall economic activity. For example, increases in spending on roads, bridges, stadiums, and other public works.

The amount by which government spending exceeds government revenues in a given time period is known as the:

Budget deficit.

A recovery will lead to a decrease in __________ unemployment.

Cyclical

If consumers expect laptop manufacturers to discounted prices next month, consumers will:

Decrease their demand for laptops today

Which of the following is not an automatic stabilizer?

Defense spending.

A rightward shift in the aggregate supply curve should result in:

Deflation and a lower unemployment rate.

The economy is definitely in a recession, the unemployment rate is over 10%. The head economist for the president is a Neo-Classical economist. What will this Neo-Classical economist recommend or not recommend? Explain.

FIX: Neo-Classical economist recommends increasing aggregate demand through more government spending to bring in more production and lead to more income to households. That will get the economy out of recession.

In the short run, if AD increases the unemployment rate will:

Fall and the price level will rise.

According to classical theory:

Flexible wages and prices allow a laissez-faire economy to adjust to shifts in aggregate demand.

____________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.

Full employment GDP

Fiscal policy is the use of:

Government taxes and spending to change economic outcomes.

A rightward shift in an aggregate demand curve will cause:

Higher prices, but not higher output, if the aggregate supply curve is vertical.

Nearly half of the federal government's tax revenues comes from:

Individual income taxes.

What kind of gap—inflationary or recessionary—will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? Anticipating the possibility of war, the government increases its purchases of military equipment.

Inflationary gap; Solution is contractionary fiscal policy

What kind of gap—inflationary or recessionary—will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? A stock market boom increases the value of stocks held by households.

Inflationary gap; the solution is contractionary fiscal policy

Your grandfater tells you that his soial security payments are indexed. what dies this mean?

It means that the dollar value of his social security payment is adjusted for changes in the price level so that hi pruchasing power is constant.

Suppose that U.S. debt is $17 trillion at the beginning of the fiscal year. During the fiscal year, the government spending is $5 trillion and tax revenues equal $3.5 trillion. What will the U.S. federal debt will be at the end of the fiscal year?

National Debt= Opening Debt balance- Budget Balance 17-(-1.5)= 18.5 trillion dollars

___________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _________.

Neoclassical economists; long run

What kind of gap—inflationary or recessionary—will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? Firms come to believe that a recession in the near future is likely.

Recessionary gap; Solution is expansionary fiscal policy

___________ depicts a trade-off between unemployment and inflation.

The Phillips curve

If the government for the state of Washington collects $65.8 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be:

a budget deficit.

GIven that chicken and beef are substitute goods, if the price of chicken decrases substantially, there would be:

a decrease in the demand for beef

An unemployed person is

a person without a job who is actively seeking and available for work

In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve?

a vertical line drawn at the level of potential GDP

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:

aggregate demand curve will shift to the right.

Consumption, investment, government spending, exports, and imports are:

all components of aggregate demand.

Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in:

an increase in price level.

Which of the following factors contribute to economic growth?

an increase in the proportion in the production of the population that is college educated

Which of the following items would not be a part of private investment?

an old shopping center acquired by a manager

A ___________ is created each time the federal government spends more than it collects in taxes in a given year.

budget deficit

When the economy of a country is operating close to its full capacity:

cyclical unemployment is close to zero.

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:

discretionary fiscal policy.

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

expansionary

From a neoclassical view, which of the following is less important?

fighting unemployment

If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy:

is producing at a point where output is more than potential GDP.

The United States is basically a ____________.

market economy

The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to __________ the rise in a consumer's true cost of living, because it doesn't take into account that the person can substitute between goods according to changes in thier relative minds.

overstate

The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called:

potential GDP.

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its __________ and its ______________ .

potential GDP; natural rate of unemployment

The Keynesian economic framework is based on an assumption that:

prices and wages are sticky and do not adjust rapidly.

In the neoclassical model, the AS curve shifts to the right over time as__________________ and potential GDP expands.

productivity increases

A ____________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

progressive tax

If South Dakota's governor reports a budget surplus in 2011, that state government likely:

received more in taxes than it spent in that year.

In an ADAS diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

recessionary gap

When the media report the U.S. inflation rate, the number cited is usually a rate computed using

the consumer price index