ECON 212 FINAL

Year CPI 2015 237 2016 240 Refer to the table above. Consider the following values of the consumer price index for 2015 and 2016. The inflation rate for 2016 was approximately equal to a. 1.3 % b. 8.0 % c. 2.8 % d. .013 %

a. 1.3 %

Which of the following is an objective of fiscal policy? a. High rates of economic growth b. Gaining independence from trade c. Increasing transfer payments d. Protecting homeland security

a. High rates of economic growth

Which of the following is NOT a main component of the Federal Reserve System: a. Senate Banking Committee b. Regional Fed Banks c. FOMC d. Board of Governors

a. Senate Banking Committee

Although the United States is the second largest exporting country, international trade is less important to the U.S. than it is to most other countries. a. True b. False

a. True

Appreciation of the U.S. dollar makes imports cheaper for us to buy but makes our exports more expensive for foreigners. a. True b. False

a. True

The benefits of imposing a quota are gained by a small number of companies and workers. a. True b. False

a. True

Suppose the equilibrium exchange rate changed from ¥120 = $1 to ¥150 = $1, we would say that the dollar a. appreciated against the yen b. is unrelated to the yen c. depreciated against the yen

a. appreciated against the yen

If an increase in investment spending of $20 million results in a $120 million increase in equilibrium real GDP, then a. the multiplier is 6 b. the multiplier is 50 c. the multiplier is 2.5 d. the multiplier is 0.166

a. the multiplier is 6

Suppose initially £0.60 = $1, and the U.S. price level is 105 while the British price level is 100. Then the real exchange rate in pounds per dollar between $US and British pounds is: a. £0.63 per $1 b. £0.65 per $1 c. £0.68 per $1 d. £0.58 per $1

a. £0.63 per $1

If I am a foreign company that frequently purchases goods and services from US vendors, which is the better scenario for me: a. the dollar is strong b. c. the dollar is weak d.

c. the dollar is weak

The employment to population ratio equals: a. the ratio of employed to total population b. the ratio of labor force to total unemployed c. the ratio of employed to working age population

c. the ratio of employed to working age population

Cyclical unemployment is primarily the result of a. the search process of matching workers with jobs. b. the ups and downs of inflation. c. the slowdown of the economy during the business cycle. d. a persistent mismatch between skills and job requirements.

c. the slowdown of the economy during the business cycle.

Suppose that real GDP is currently $11.7 trillion and potential real GDP is $12.0 trillion, which is a difference of $300 billion. The tax multiplier is -4.0. Holding other factors constant, by how much will taxes need to be cut to bring the economy to equilibrium at potential GDP? a. $7.5 billion b. $3 trillion c. $7,500 d. $75 billion

d. $75 billion

According to the Rule of 72. If Real GDPpc grows at an annual rate of 4.5%, how many years will it take to double? a. 15 years b. 14 years c. 15.5 years d. 16 years

d. 16 years

An increase in the British demand for U.S.-produced products will have which of the following effects on the value of the dollar and the equilibrium quantity of dollars in the international exchange markets? a. A decrease in the value of the dollar and an increase in the equilibrium quantity. b. A decrease in the value of the dollar and a decrease in the equilibrium quantity. c. An increase in the value of the dollar and an increase in the equilibrium quantity. d. An increase in the value of the dollar and a decrease in the equilibrium quantity.

d. An increase in the value of the dollar and an increase in the equilibrium quantity.

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre−trade positions, trade makes both countries better off because in each country a. Total employment is greater b. Total transfer payments are greater c. Total wages are higher d. Total consumption is greater

d. Total consumption is greater

Like with any other tax, the imposition of a tariff will cause the supply curve to: a. shift right (outward) b. shift left (inward)

b. shift left (inward)

The most significant factor for economic growth over the long-run is: a. Production efficiency b. Human capital c. Technological change d. Production management

c. Technological change

Suppose housing prices and stock prices decline significantly and cause autonomous consumption spending to decrease by $55 billion. If the marginal propensity to consume equals 0.50, the equilibrium real GDP will change by: a. $82.5 billion b. no change in equilibrium real GDP c. $27.5 billion d. $110 billion

d. $110 billion

Given the table above, which level of output is the equilibrium level? a. $7,700 b. $8,000 c. $8,600 d. $8,300

d. $8,300

If your nominal wage increases have been more than the inflation over the same time period, we can say your nominal wage has ________ and the purchasing power of your income has _. a. fallen; fallen b. fallen; risen c. risen; fallen d. risen; risen

d. risen; risen

For all points above the 45-degree line, planned aggregate expenditure will be greater than GDP. True False

True

A temporary tax cut is a more effective stimulative fiscal policy action than a permanent tax cut. A. True B. False

B. False

An increase in the money supply is a discretionary fiscal policy, which will increase aggregate demand. A. True B. False

B. False

Contractionary fiscal policy will shift the aggregate demand curve to the right. A. True B. False

B. False

In the model of the economy, we find that I = S + (T - G). This means that if saving is constant, a fall in T-G must be associated with an increase in I. A. True B. False

B. False

Rather than banks borrowing from each other to cover deposits, the Fed prefers to act as the lender of last resort. A. True B. False

B. False

The Federal Budget should always be balanced, even during a recession. A. True B. False

B. False

The Federal Reserve sets the Federal Funds rate. A. True B. False

B. False

An increase in the marginal propensity to consume will make the spending multiplier smaller. True False

False

Based on the Circular Flow Diagram, the value of total production cannot be equal to the value of total income. True False

False

Suppose you purchase a new vehicle in 2015 and sell it in 2018. The sale of your vehicle counts towards GDP in 2018. True False

False

If the Bureau of Economic Analysis reports that real GDP growth has increased for four consecutive calendar quarters, the economy is most likely in the expansion phase of the business cycle. True False

True

When consumption spending declines, firms cut back on production so as not to accumulate inventories. True False

True

While you may spend the time and effort to cook for your friends, that time and effort is excluded in the national GDP, but the full price of a restaurant meal would be counted in GDP. True False

True

Which of the following would be considered a fiscal policy action? a. A tax cut is designed to stimulate spending during a recession. b. Spending on the war in Afghanistan is increased to promote homeland security. c. Tax incentives are offered to encourage the purchase of fuel-efficient cars. d. The Fed increases the money supply.

a. A tax cut is designed to stimulate spending during a recession.

Most economists believe that GDP underestimates total production because of these two factors which are not included in GDP: a. Household production and the underground economy. b. Interest rates and price level changes. c. Globalization and long-run growth. d. Labor force and unemployment.

a. Household production and the underground economy.

If the U.S. alone were to reduce tariffs on imported goods, how would imports be affected? a. US imports would increase b. US imports would decrease

a. US imports would increase

When actual GDP is below potential GDP the budget deficit increases because of: a. an increase in transfer payments and a decrease in tax revenues. b. an increase in both transfer payment and tax revenues. c. a decrease in both transfer payments and tax revenues.

a. an increase in transfer payments and a decrease in tax revenues.

Government spending and taxes that increase or decrease without any action taken by the government are referred to as: a. automatic stabilizers b. discretionary fiscal policy c. supply and demand d. expenditures

a. automatic stabilizers

The U.S. exchange rate system can best be described as: a. floating exchange rate system b. fixed exchange rate system

a. floating exchange rate system

In the Aggregate Expenditure Model, generally speaking, what can we say for all points above the 45 degree Spending = Output line? a. for all points above the 45 degree line, spending is greater than output and inventories are falling. b. for all points above the 45 degree, spending is less than output and inventories are rising. c. all points above the 45 degree line are in equilibrium.

a. for all points above the 45 degree line, spending is greater than output and inventories are falling.

Product Quantity Price Sweatshirts. 100 $35.00 Dental examinations 35 $75.00 Coffee drinks 1,000 $4.00 Coffee beans (pounds) 2,000 $0.50 Refer to the table above. Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals a. $11,125 b. $10,125 c. $9,750 d. 1,135 units

b. $10,125

Prod QTY BY 09 CY 17 Milk—-150 $1.50 $2.00 Bread-200 $1.00 $1.50 Refer to Table Above. Assume the market basket for the consumer price index has two products, bread and milk at the same quantity, and the prices for 2009 and 2017. Assuming that 2009 is the base year, the Consumer Price Index for 2017 equals: a. 118.2 b. 141.2 c. 1.16 d. 1.41

b. 141.2

Suppose the nominal interest rate is 6% and the inflation rate for a given year is 2%, what is the real interest rate? a. 3% b. 4% c. 12% d. 8%

b. 4%

What would be the effect on the economy if the fiscal policy of reducing transfer payments is selected? a. An increase in total spending and a multiplied effect on aggregate demand b. A decrease in disposable income and total spending c. An increase in after-tax income

b. A decrease in disposable income and total spending

-----------Madison -- Austin Empanadas ---- 30 ------- 50 Tacos ----------- 24 ------- 32 Madison and Austin own Cafe Ole'. The table above lists the number of empanadas and tacos Madison and Austin can each make in one hour. Select the statement that accurately interprets the data in the table. a. Madison has an absolute advantage in making empanadas and tacos. b. Austin has an absolute advantage in making empanadas and tacos. c. Austin has an absolute advantage in making empanadas and Madison has an absolute advantage in making tacos. d. Madison has an absolute advantage in making empanadas and Austin has an absolute advantage in making tacos.

b. Austin has an absolute advantage in making empanadas and tacos.

Education tax incentives would primarily effect: a. Aggregate Supply b. Both Aggregate Demand and Aggregate Supply c. Aggregate Demand

b. Both Aggregate Demand and Aggregate Supply

Domestically produced goods and services sold to other countries are referred to as a. Imports b. Exports

b. Exports

In the short run, exchange rates are largely influenced by purchasing power parity. a. True b. False

b. False

Which of the following brings in the largest percentage of federal government revenue? a. Government expenditures b. Individual income taxes c. Tariffs and imports d. corporate taxes

b. Individual income taxes

Which of the following is considered a cost of free trade? a. Higher prices in the product market b. Job loss in the domestic market c. Tariffs and quotas

b. Job loss in the domestic market

When production in an economy grows more quickly than the population in that economy, which of the following must be occurring? a. Real GDP is falling. b. Real GDP per capita is rising. c. Incomes are growing at a slower rate than the population. d. Living standards are falling.

b. Real GDP per capita is rising.

If the FOMC decides to target an increase in the Federal Funds rate, it will: a. Just increase the fed funds rate. b. Sell bonds on the open market. c. Buy bonds on the open market. d. Call up banks and tell them to increase rates.

b. Sell bonds on the open market.

In the intermediate run, as income increases in the U.S. and residents have more dollars to buy foreign goods and services, the value of the dollar: a. increases b. decreases

b. decreases

Active changes in tax and spending by government intended to smooth out the business cycle are called _______________, and changes in taxes and spending that occur passively over the business cycle are called _______________. a. automatic stabilizers; monetary policy b. discretionary fiscal policy; automatic stabilizers c. discretionary fiscal policy; expansionary fiscal policy d. automatic stabilizers; discretionary fiscal policy

b. discretionary fiscal policy; automatic stabilizers

When one currency is pegged against another currency, Select one: a. its value is fixed against all other currencies. b. its value is fixed in terms of that currency. c. it is on a managed float system. d. it cannot experience inflation.

b. its value is fixed in terms of that currency.

When calculating GDP, an example of an intermediate good would be a. a new car b. tires on a new car c. new tires to replace the old tires on a car d. a used car

b. tires on a new car

If the MPS is .35, then a $15,000 increase in disposable income will increase consumption by how much? (Note: you are being given MPS, not MPC) a. $42,857 b. $525,000 c. $9,750 d. $5,250

c. $9,750

Suppose that real GDP is currently $11.7 trillion and potential real GDP is $12.0 trillion. The government purchases multiplier is 5.0 and the tax multiplier is -4.0. Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP? And by how much will taxes have to be cut to bring the economy to equilibrium at potential GDP? a. .75 million; .60 million b. 6 billion; 7.5 billion c. 60 billion; 75 billion

c. 60 billion; 75 billion

In 2015, the working age population was 251.10 million; the labor force was 157.07 million. There were 194.04 million people employed and 0.62 million discouraged workers. What was the labor force participation rate? a. 80.9% b. 77.3% c. 62.6% d. 4%

c. 62.6%

Suppose the Marginal Propensity to consume is .75 and the government increased spending by 5 billion. How would we model this change to aggregate demand? a. Aggregate demand shifts left by $20 billion b. Aggregate demand shifts right by $5 billion c. Aggregate demand shifts right by $20 billion d. Aggregate demand shifts left by $5 billion.

c. Aggregate demand shifts right by $20 billion

If the required reserve ratio is 5% and banks try to remain fully loaned out, what would be the effect of a Fed purchase on $10 million of bonds? a. This will not affect the money supply. b. An increase in the money supply of $20 million c. An increase in the money supply of $200 million d. An increase in the money supply of $10 million

c. An increase in the money supply of $200 million

In the short run, as interest rates in the US rise, the demand for treasury bonds increases, which increases the demand for dollars. As a result, the: a. Quantity demanded for dollars increases b. Exchange rate for dollars increases c. Both A and B

c. Both A and B

Which of the following would result in GDP for an economy equal to $12 trillion? a. C = $9 trillion, I = $2 trillion, G = $4 trillion, NX = $3 trillion b. C = $8 trillion, I = $2 trillion, G = $2 trillion, NX = - $2 trillion c. C = $7 trillion, I = $5 trillion, G = $2 trillion, NX = - $2 trillion d. C = $6 trillion, I = $3 trillion, G = $2 trillion, NX = - $1 trillion

c. C = $7 trillion, I = $5 trillion, G = $2 trillion, NX = - $2 trillion

________ is the ability to have a lower opportunity cost than competitors when using the same amount of resources. a. Absolute Advantage b. Competitive Advantage c. Comparative Advantage

c. Comparative Advantage

Assuming banks keep nearly zero excess reserves, what would happen to the money supply if the Fed increased the required reserve ratio? a. It rises b. It does not change c. It falls

c. It falls

If the U.S. has an absolute advantage in the production of software and computers when compared to Mexico, but has a comparative advantage in the production of software. After opening to trade the US should produce: a. One cannot tell unless we also know the opportunity costs for both countries. b. More computers and less software. c. More software and fewer computers. d. More software and more computers.

c. More software and fewer computers.

When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is a. a specialized good b. a US import and French export c. a US export and French import d. none of the above

c. a US export and French import

To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the: a. budget deficit or surplus as a percentage of government spending. b. absolute size of the budget deficit or surplus. c. budget deficit or surplus as a percentage of GDP. d. budget deficit or surplus as a percentage of tax revenues.

c. budget deficit or surplus as a percentage of GDP.

If a country's currency is determined only by the demand and supply for that country's currency, the country is said to have a a. gold standard b. fixed exchange rate c. floating exchange rate d. managed float

c. floating exchange rate

When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study a. nominal GDP b. GNP c. real GDP d. GDP deflator

c. real GDP

Suppose booming economies in the BRIC nations causes net exports to rise by $135 million in the United States. If the MPC is 0.6 what will be the change in equilibrium GDP? a. $81 million b. $225 million c. will not change equilibrium real GDP d. $337.5 million

d. $337.5 million

What happens to real GDP, employment, and prices if income taxes increase? Assume we start in a long-run equilibrium and go to a new short-run equilibrium. Choose one of the following: a. Real GDP rises, employment rises, and prices rise. b. Real GDP rises, employment rises, and prices remain constant. c. Real GDP falls, employment falls, and prices rise d. Real GDP falls, employment falls, and prices fall.

d. Real GDP falls, employment falls, and prices fall.

Choose from the list below the reason why countries may choose to impose trade restrictions: a. to protect jobs and wages b. to protect certain industries c. to retaliate against other country's restrictions d. all of the above

d. all of the above

The demand for dollars is the international demand for U.S. a. goods and services b. investments c. financial assets d. all of the above

d. all of the above

To decrease the money supply, the Federal Reserve could a. lower the required reserve ratio. b. raise transfer payments. c. lower the discount rate. d. conduct an open market sale of Treasury securities.

d. conduct an open market sale of Treasury securities.

Which of the following price indices comes closest to measuring the cost of living of the typical household? a. PPI b. GDP Deflator c. S&P index d. consumer price index

d. consumer price index

When a government lowers a fixed exchange rate, it is said to have _______ its currency. a. appreciated b. depreciated c. revalued d. devalued

d. devalued

According to the phases of the Business Cycle, the event that occurs during the highest point of economic activity is called a(n): a. trough b. expansion c. recession d. peak

d. peak

The type of unemployment that arises from a mismatch between job skills and job requirements is: a. cyclical unemployment b. natural unemployment c. frictional unemployment d. structural employment

d. structural employment