Macro 16425 Exam 2
If the marginal propensity to consume is 0.8, full-employment output is $14 trillion, and current output is $13.5 trillion, then investment spending must _____ to reach full-employment output
increase by $0.1 trillion
An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _____ in the _____ U.S.-made products
increase; aggregate demand for
A(n) _____ in productivity and a(n) _____ in taxes will shift short-run aggregate supply to the right.
increase; decrease
In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in
increased inflation
Other things equal, if a recession gets worse, the number of discouraged workers _____, and the number of those in the labor force _____
increases; decreases
To have long-term economic growth, the production function suggests
increasing the availability of technology, capital, and labor
Which of the following items is NOT included in gross private domestic investment?
purchases of common stock
Assume that the MPC is 0.75. Full employment is considered to be at a GDP level of $500 billion. The GDP is $600 billion. What should the government do to achieve full employment
reduce spending by $25 billion
Which of the following is a source of increases in productivity
research and development capital investment improvements in labor quality
Firms decide how much to invest by comparing the rate of return on their projects with
the interest rate
The collapse of home values in 2008 led to _____ in Americans' consumption and _____ in their saving rates
a decrease; an increase
In macroeconomics, the long run is
a period long enough that participants in the economy will have enough time to gain all relevant information and enough time to act correctly on that information
The output of all the goods and services demanded in an economy at various price levels is called
aggregate demand
During the 1970s, some countries stopped oil sales to the United States. As petroleum prices rose
aggregate supply fell and the aggregate price level rose
According to the circular flow model, the value of the household sector and the value of the business sector will:
always be equal.
According to the textbook, what brought the United States out of the Great Depression
an increase in spending on World War II
Between 1990 and 2010, the number of people in the world living in poverty has
been cut in half
Investment is defined as spending by
business that adds to the productive capacity of the economy
Which are the determinants of short-run aggregate supply
changes in input prices, taxes, and business and inflationary expectations
In 2012, the group with the lowest unemployment rate in the United States was
college graduates
Everything else the same, if investment expenditures rise by $300 billion and imports increase by $300 billion, then GDP
does not change
In a simple circular flow diagram, total spending on goods and services in the product market:
equals the total income earned in the resource market.
Which of the following groups benefit from an unanticipated rise in the inflation rate
homeowners with fixed-rate mortgages
Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is:
$0.1 trillion
What is real GDP in 2014 dollars if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100
$13,636 billion
If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals:
$140
If your income is $35,000 and the average propensity to save is 0.46, what is consumption
$18,900
Last year, Marian earned $25,000, paid $2,000 in taxes, and saved $5,000. Marian's personal income was _____, her disposable personal income was _____, and her consumption spending was _____
$25,000; $23,000; $18,000
All of the following are determinants of aggregate supply EXCEPT
Net Exports
Investment spending
Tends to be tangible
The Potbelly Pothole Company is undertaking some investments in its plant. Suppose interest rates fall and new technologies increase the return on its investment. What is likely to happen?
The company's demand for investments will rise
When the economy is operating at the natural rate of unemployment
When cyclical rate is zero
Which is true about differences in savings rates across groups of people
Younger people and lower-income people tend to save less
According to the table net exports of goods and services are equal to: Exports- 1746.1 Imports- 2251.5
-505.4
If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is:
0.25
Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $40 billion. These economists would estimate that the marginal propensity to save is
0.25
If disposable income is $250 and saving is $50, how much is the average propensity to consume
0.8
The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is Income 0,500,1000,1500,2000,2500 Consumption 250,700,1150,1600,2050,2500
0.9
If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent
1,000
There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force
10 Million People
Spending by federal, state, and local governments has grown from _____ of GDP in the 1930s to more than _____ today
10%; 30%
According to the table, the number of people in the labor force is Employed- 85 Unemployed Seeking work-25 Discouraged workers-15 Unpaid Family members working 15-plus hours-10 Retired-5
115
If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is
125
Suppose the Bureau of Labor Statistics collects the data presented in the following table: 2010- $200 2011- $230 2012- $250 If 2010 is the base year, then the consumer price index for 2012 is
125
According to the information, the GDP for 2010 was: PC- 10,353.5 Gross Private domestic investment- 1769.1 Exports- 1746.1 Imports- 2251.5 Government Purchases- 2975.1 Capital- 1030.2
14,592.3
If an economy's GDP will double in 25 years, then its growth rate must be about
2.8%
Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is
3%
If the marginal propensity to save is 0.2, the value of the spending multiplier will be
5
If output equals A × (5K + 2L), what is output if A equals 2,000, capital equals 10, and labor equals 100
500,000
Approximately what share of U.S. GDP is consumption
70%
Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9. Which of the following statements is correct
A small increase in spending will have a more powerful effect in starting a recovery in the United States than in Japan
Which of the following is true within the circular flow of economic activity?
Business firms are sellers of products and buyers of production factors
The Leading Economic Index fell in July and August, rose in September, and fell again in October. Based on this, we should expect a recession in the near future
False
Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of the following is true
Jennifer is losing purchasing power by 2%
If autonomous investment spending falls by $1,000 and the marginal propensity to consume is 0.75, the total effect on the economy is a decrease of _____ in income or output
$4,000
Jill has an escalator clause in her labor contract that gives her a raise equal to the change in the consumer price index (CPI). Last year she earned $40,000 and the CPI was 100. If the CPI this year is 110, her new salary is
$44,000
Last year, Megan's salary was $65,000 while the consumer price index increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be
$68,578
The largest component of GDP is
Consumption
Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a local elementary school. She began looking for a full-time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is?
Employed
Suppose the National Bureau of Economic Research announces that the economy has been in a recession for the past year. What effect might this announcement have on the economy?
Employers will trim payrolls in an effort to cut costs in the face of decreased demand for their products.
Suppose an economy has historically grown at a rate of 2.25%. The economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.
Expansion
A tax decrease on producers will shift the aggregate supply curve to the left
False
Cathy works part-time as a bookkeeper but would like to have a full-time position. She has been actively searching for months but so far has not found a job. According to the Bureau of Labor Statistics, Cathy is unemployed
False
In the United States, people are not counted as employed if they have a job but are on maternity or paternity leave
False
Small differences in growth rates do not lead to large overall differences in income over time
False
Whispering Valley Furniture hires five employees working eight hours each to produce 80 rocking chairs. Rocky Gap Furniture hires ten employees working eight hours each to produce 160 rocking chairs. Which company's workers are more productive
The two companies' workers are equally productive
An economy has 100,000 residents. There are 46,000 people with full-time jobs, 14,000 with part-time jobs, and 4,000 unemployed people who are actively looking for work. The unemployment rate for this economy is 6%
True
Economic growth typically results in longer life expectancies
True
John Maynard Keynes devised the framework for developing policies to avoid future severe macroeconomic downturns
True
The paradox of thrift is that if everyone tries to save more, in total, they might save less
True
To sustain growth beyond the small fluctuations common in the business cycle, an economy's ability to produce must increase
True
Johnny is 17 and works in his father's bubble gum store 10 hours a week after school. His father pays him no money but buys video games for him. However, Johnny earns a spot on the high school football team and no longer works in his father's store. How is Johnny categorized in the unemployment figures?
Unemployed
One way a stable financial system supports economic growth is that it
facilitates the movement of capital from savings to investment
Gross domestic product is the total market value of all:
final goods and services produced in the United States by labor and property
Which of the following items is NOT a determinant of aggregate demand
government saving
When the National Activity Index is at zero, the economy is growing at _____ rates. Negative values imply _____ trends. Positive values imply that growth is _____ the long-term trend.
historical; slowing; faster than
One important reason economists track business investment is that:
it is a leading indicator of the business cycle
In the absence of copyright and patent laws
it is difficult for innovators to profit from their efforts
Generally, nations with the _____ economic freedom also have the _____ per capita GDP
least; lowest
A shift to the _____ of the _____ curve would cause the price level and employment to decrease
left; aggregate demand
If the amount of regulation in an economy increases, the aggregate supply curve shifts _____ and output supplied will _____
left; decrease
Increased taxes will shift the aggregate demand curve to the _____ and _____ output demanded
left; decrease
A legal system that enforces property rights is important to economic growth because
legal protection of ideas and technologies gives people who innovate the ability to protect their work
If a country has a low capital-to-labor ratio, then it tends to have
low labor productivity and low wages
Physical capital includes
manufactured products that are used to produce other goods and services
Which of the following technologies most strongly affected the growth in U.S. productivity in recent decades
microcomputers
Jordan Meadows lost his job as an airline pilot and has not been able to find another job as a pilot. Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents. According to the Bureau of Labor Statistics, Jordan is
not in the labor force
An example of intangible infrastructure is
patent laws
Holding other expenditures constant, if imports fall by $20 billion and exports fall by $10 billion, then GDP
rises by $10 billion
Human capital refers to:
skills, knowledge, and quality of workers
The classical form of the production function states that output is determined by
some function of available labor or capital
Which of the following two things can people do with money received as disposable personal income
spend money or put it into savings
Zach has been laid off from his job as an aircraft worker . He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is
unemployed
Land and natural resources include
water and minerals that come from the earth