ECON Final Exam
In year 1 the CPI is 174, and in year 2 the CPI is 190. If Sarah's salary was $49,800 in year 1, what salary in year 2 would cause her to exactly "keep up with inflation"?
$54,379
If checkable deposits in Bank A total $620 million and the required reserve ratio is 9 percent, then required reserves at Bank A equal
$55.8 million
In 2020, the U.S. GDP per capita is approximately
$58,000
The movie "Return of the Jedi" earned $264 million in 1983 when it was released. The CPI in 1983 was 97.8 and the CPI in 2012 was 226.665. Approximately how much did the movie earn in 2012 dollars?
$612 million
If the Fed injects $600 million of new money into the economy, what is the maximum change in the money supply if the required reserve ratio is 8.5%?
$7,058.8 million
Suppose that net exports are -$300 billion and exports are $500 billion. Imports equals
$800 billion
If the Fed injects $800 million of new money into the economy, what is the maximum change in the money supply if the required reserve ratio is 8.5%?
$9,411.8 million
The _____________ is the part of the budget deficit that is a result of a downturn in economic activity.
cyclic deficit
When the Fed purchases securities from a bank, it __________ reserves and ____________ the money supply.
increases; increases
A PPF is bowed outward as a result of
increasing opportunity costs
Expansionary fiscal policy actions include __________ government spending and/or __________ taxes, while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.
increasing; decreasing; decreasing; increasing
Economists believe that people's wants are
infinite
An overall rise in prices is called:
inflation
The consequence of expansionary fiscal policy is
inflation
A savings deposit is a type of
interest-earning account at a bank or thrift institution in which funds can be withdrawn at any time without a penalty payment.
The law of demand states that price and quantity demanded are
inversely related, ceteris paribus.
As business taxes increase
investment spending decreases
As expected profitability increases
investment spending increases
Suppose a stock market bubble inflates stock prices to new records. What will happen to overall consumption in this economy?
it will increase
The physical ad mental talents people bring to production processes comprise the resource called
labor
According to the quantity theory of money, increasing the money supply
leads to inflation
If the government increases the income tax rate, consumers will have _________ to spend and will _________ their consumption.
less; reduce
An economy is productive efficient if it produces
maximum output with given resources and technology
A price ceiling is a government-mandated
maximum price above which legal trades cannot be made.
If the minimum wage law sets a price floor above the equilibrium wage in the market for unskilled labor, then the
minimum wage will create a surplus of unskilled labor
Money's basic advantage as compared to barter is that
money reduces transaction costs.
Opportunity cost is the __________ alternative forfeited when a choice is made.
most highly-valued
A change in the quantity demanded of Real GDP is graphically represented as a
movement from one point on the AD curve to another point on the same curve.
According to the equation of exchange, if GDP equals $4 trillion and the money supply equals $1 trillion, the velocity of money
must be 4
If foreign income decreases
net exports will likely decrease
Price indexes allow us to convert __________ measures of output into __________ measures of output.
nominal; real
If the demand for computer software rises as incomes rise, then computer software is a (an)
normal good
The unemployment rate equals the
number of unemployed persons divided by the civilian labor force.
A federal budget deficit
occurs when government expenditures exceed tax revenues.
The chief difference between one-shot inflation and continued inflation is that
one-shot inflation is a single increase in the price level and continued inflation is a sustained increase in the price level.
Which of the following will not shift the LRAS curve?
personal income taxes
The civilian non-institutional population can be broken down into two groups:
persons not in the labor force and persons in the labor force.
Attempts to determine "what is" are part of __________ economics.
positive
The minimum wage is an example of a
price floor
GDP can rise as a result of a rise in __________________, and Real GDP can rise as a result of a rise in _______________________.
prices or output; output only.
Crowding out results in a decrease in
private spending
The U.S. income tax is currently a __________ tax.
progressive
The total amount of money that a government owes at any one point in time is called:
public debt
If the Fed wants to increase the money supply through an open market operation, it will
purchase government securities.
Macroeconomists define consumption as
purchases by the household sector
An aggregate demand (AD) curve shows the
real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.
A price ceiling set below the equilibrium price will
result in a shortage of a good
A price floor set above the equilibrium price will
result in a surplus of the good
The expectation of higher future income is a
rightward shifter of the AD curve
A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts the AD curve to the __________.
rise; right
An increase in the quantity of resources
shifts the PPF rightward
M2 includes M1 plus all of the following except
short-term U.S. government securities.
Transfer payments are
spending that transfers resources from the government to individuals.
Assume that Ms. Sawyer's salary is $22,000, up from $20,000 last year, while the CPI is 165 this year, up from 150 last year. This means that Ms. Sawyer's real income has
stayed the same
Which of the following is a correct listing of money's functions?
store of value, medium of exchange, unit of account
The deficit that exists when the economy operates at full employment is called the __________ deficit.
structural
The _____________ is the part of the budget deficit that would exist even if the economy were operating at full employment.
structural deficit
Underground activities are not counted in GDP because
there are no written records of underground activities.
The best reason economists take only final goods and services into account when calculating GDP is that
they want to avoid the problem of double counting.
The United States is divided into __________ Federal Reserve districts, each with a district bank.
twelve
Points outside (or beyond) the PPF are
unattainable
A person in the civilian labor force falls into one of two categories:
unemployed or employed.
The short-run aggregate supply curve is
upward sloping
The sale of __________ goods is omitted from current GDP because __________.
used goods; these goods were counted in an earlier year
Normative economics is concerned with
value judgments and opinions
The long-run aggregate supply (LRAS) curve is
vertical
On a supply-and-demand diagram, equilibrium is found
where the demand and supply curves intersect.
If Real GDP is less than Natural Real GDP, the economy is in
a recessionary gap
An advance in technology causes
a rightward shift in the supply curve.
At a price below the equilibrium price, there is
a shortage
At a price above the equilibrium price, there is
a surplus
If policymakers increase taxes, they are enacting
contractionary fiscal policy
Suppose that consumption spending is $4,200 billion, spending on durable goods is $1,200 billion, and spending on services is $2,000 billion. What does spending on nondurable goods equal?
$1,000 billion
Ninth National Bank holds $200 million in checkable deposits and $18,000,000 in total reserves. With a required reserve ratio of 8 percent, how much in excess reserves is Ninth National holding?
$2,000,000
If the money supply is $400, velocity is 6, then in the equation of exchange, PQ is
$2,400
If checkable deposits in Bank A total $350 million and the required reserve ratio is 7.5 percent, then required reserves at Bank A equal
$26.25 million.
Tenth National Bank holds $285 million in checkable deposits and $35 million in reserves. With a required reserve ratio of 11 percent, how much in excess reserves is Tenth National holding?
$3.65 million
If Real GDP is $8,000, the money supply is $3,100, and velocity is 4, then the price level is
1.55
Suppose the civilian non-institutional population equals 250,000; there are 132,500 employed persons and 10,000 unemployed persons. How many people are not in the labor force?
107,500
Which of the following items is a final good?
a sweater purchased by someone in a department store
The CPI was 238 in one year and 244 the following year. How much did prices rise between these two years?
2.52 percent
Consider two points on the PPF: point A, at which there are 10 apples and 20 pears, and point B, at which there are 7 apples and 21 pears. If the economy is currently at point A, the opportunity cost of moving to point B is
3 apples
If the nominal interest rate is 4 percent and the expected inflation rate is 1 percent, the real interest rate is
3 percent
Look at the following data: The frictional unemployment rate is 3 percent, the natural unemployment rate is 6.5 percent, and the cyclical unemployment rate is 2.4 percent. The structural unemployment rate is __________ percent and the actual unemployment rate (in this economy) is __________ percent.
3.5; 8.9
If the GDP of Macroland is $900,000,000 and the country has a population of 250,000 people, what is the GDP per capita?
3600
If M = $500, P = $20, and Q = 100, then V is
4.0
Suppose you receive a bonus at work worth $10,000. If your MPC is 0.5, how much of the additional $10,000 will you spend?
5000
An increase in the price of oil will cause
a leftward shift in the SRAS curve
As interest rates rise, the ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S. price level and a(n) ________________ in Real GDP.
AD; leftward; decrease; decrease
As the U.S. dollar appreciates, the U.S. ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S. price level and a(n) _________________ in Real GDP in the United States.
AD; leftward; decrease; decrease
An increase in the price of good B caused an increase in the demand for good C. This indicates that
B and C are substitutes
Suppose a drop in stock prices makes people feel less wealthy. This would cause __________ the economy's AD curve.
a leftward shift of
If you are hired by a US owned consulting company with offices in Brazil and you work there, your work will contribute toward:
Brazil's GDP, because you are working in Brazil.
In the equation of exchange, the money supply multiplied by velocity equals
GDP
In year 1 the CPI is 140, and in year 2 the CPI is 160. From year 1 to year 2, Chiang's salary rises from $42,000 to $47,000, and Marta's salary rises from $55,000 to $66,000. Who is "more than keeping up with inflation"?
Marta
Through war, many of the factories in country 1 are destroyed and many of its people are killed. As a result, the country's
PPF after the war has probably shifted to the left compared to its PPF prior to the war.
If a person uses money to buy a pair of shoes, money is functioning as
a medium of exchange
Suppose the economy goes from a point on its production possibilities frontier (PPF) to a point below that PPF. Assuming that the PPF has not shifted, this could be due to
a new law that interferes with economic efficiency
The space on the freeway is fixed at any instant of time. A supply cute that shows this is
a perfectly vertical line
"Economic growth" has occurred if the
Real GDP this year exceeds the Real GDP of last year
An increase in labor productivity shifts the
SRAS curve rightward
After an adverse supply shock occurs, the ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S. price level and a(n) ________________ in Real GDP.
SRAS; leftward; increase; decrease
Which of the following is a normative macroeconomics statement?
The central bank should increase the nation's money supply.
What is personal wealth
The value of someone's assets minus her debts
When Toyota Motor Company produces a new pickup truck in San Antonio, Texas, it counts as
US GDP
Can a one-time increase in the supply of money cause one-shot inflation?
Yes, because it shifts the aggregate demand curve rightward.
Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve?
a change in price level
If increasingly more units of good Y must be given up as each successive unit of good X is produced, then the PPF for these two goods is
a downward-sloping curve that is bowed outward
Suppose Congress increases income taxes. This is an example of
contractionary fiscal policy.
Fiscal policy most directly affects the economy by increasing or decreasing
aggregate demand
If Max's demand for hot dogs falls as his income rises, then for Max hot dogs are
an inferior good
Points inside (or below) the PPF are
attainable but productive inefficient
The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.
average
Which measure of inflation best reflects underlying trends in the economy?
core inflation
Severe oil shortages in the United States during the 1970s created
cost-push inflation
Fractional reserve banking is a term used to describe a banking system whereby
banks hold reserves equal to only a fraction of their deposit liabilities
Since 1940, the US government has generally had a:
budget deficit
Which of the following pairs of goods would be most likely to be substitutes?
butter and margarine
Open market operations are the
buying and selling of government securities by the Fed.
To macroeconomists, investment is mainly the purchases of goods and services
by businesses
As personal income taxes increase
consumption decreases
In the United States, the largest expenditure component in GDP is
consumption expenditures
As wealth increases
consumption increases
The expenditure approach to measuring GDP sums
consumption, investment, government purchases, and net exports.
Produced goods used as inputs for the production of other goods comprise the resource known as
capital
A rise in wage rates
causes the SRAS curve to shift leftward
The Federal Reserve System is the
central bank of the United States.
Fiscal policy refers to
changes in government expenditures and taxation to achieve particular economic goals.
Monetary policy refers to
changes in the money supply to achieve particular economic goals.
M1 is comprised of currency held outside banks + traveler's checks + __________.
checkable deposits
Decision making "at the margin" means making a choice based on __________ of a decision.
comparing the additional benefits and costs
As the price of good X rises, the demand for good Y falls. Therefore, goods X and Y are
complements
When economists speak of scarcity, they are referring to the
condition in which people's wants outstrip the limited resources available to satisfy those wants
The sale of a government security by the Fed
decreases the supply of money
As income taxes rise, disposable income __________, causing __________ the AD curve.
decreases; a leftward shift of
Deflation _________ consumption and investment, which ___________.
decreases; decreases aggregate demand.
A temporary change in the price level caused by changes in the business cycle is known as
demand-pull inflation
A decrease in the money supply will shift the aggregate __________ curve to the __________.
demand; left
Suppose the real exchange rate of 115 Japanese yen to the dollar moves to 105 yen to the dollar. The dollar has __________, making Japanese goods __________ expensive for Americans.
depreciated; more
Which of the following is not a major responsibility of the Fed?
determining tax rates
The cyclical unemployment rate is defined as the __________ unemployment rates.
difference between the existing (actual) and the natural
The law of supply states that price and quantity supplied are
directly related, ceteris paribus.
The interest rate that a commercial bank pays when it borrows from the Fed is the __________ rate.
discount
What is the most prominent rationing device you will likely find at your campus bookstore?
dollar price
Aggregate demand curves are
downward sloping
Monetarists can be described as a group of macroeconomists who
emphasize the importance of the money supply as a determinant of macroeconomic activity.
Reserves held beyond the required amount are called __________ reserves.
excess
Core inflation
excludes goods with historically volatile prices changes.
If congressional policymakers aim to increase aggregate demand, they will likely enact:
expansionary fiscal policy
Net exports equal
exports minus imports
Government purchases consist of the total dollar amount(s) spent on goods and services by the
federal, state, and local governments
Gross Domestic Product (GDP) is the total market value of all
final goods and services produced annually within a country's borders.
The first bankers were
goldsmiths
Which of the following is not one of the four broad categories of resources?
government
A balanced budget occurs when
government expenditures equal tax revenues
When prices of food and energy are added to core inflation, we get
headline inflation
The unique feature of a progressive income tax is that the higher one's income (up to some point), the __________ one pays.
higher the tax rate
Microeconomics is the branch of economics that deals with
human behavior and choices as they relate to relatively small units --- an individual, a firm, an industry.
If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is
in an inflationary gap
If the Fed purchases government securities from commercial banks, the reserves of the banking system will immediately
increase by the amount of the purchase
To decrease the money supply, the Fed may
increase the required reserve ratio.
Disposable income is
that portion of personal income that can be used for consumption and saving.
When a commercial bank borrows from the Fed,
the bank can make more loans.
The marginal propensity to consume is calculated as:
the change in consumption divided by the change in disposable income
Barter is
the exchange of goods and services for goods and services without the use of money.
The opportunity cost of attending college is
the highest valued alternative one forfeits to attend college.
The higher the opportunity cost of attending college,
the less likely an individual will go to college
The simple quantity theory of money predicts that if
the money supply rises by 10 percent, then the price level rises by 10 percent.
"Full employment" is said to exist when the unemployment rate equals
the natural unemployment rate
Which of the following is an intermediate good?
the potatoes a farmer sell to a factory to be used in the production of potato chips
The Fed can change the money supply by changing
the required reserve ratio
An advance in technology commonly refers to the ability to produce
the same output with a smaller quantity of resources more output with a fixed quantity of resources
Entrepreneurship is
the talent for organizing the use of land, labor and capital, among other things.