Macro Econ Final

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Price Ceilings consequences

1. Shortages 2. Reductions in product quality

Price Ceilings consequences

1. Shortages 2. Reductions in product quality 3. Wasteful lines and other search costs 4. A loss of gains from trade (Deadweight loss) 5. Misallocation of resources

Which of the following is a problem with deflation? a. It raises the real cost of debt repayment. b. There is no problem with deflation; falling prices are good for the economy. c. Stopping it will cause a recession. d. It causes people to pay more taxes.

A

Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator? a.The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of all goods and services in the economy. b. The CPI measures the average prices of retail goods and services, whereas the GDP deflator measures the average prices of wholesale goods. c. The CPI measures the average prices of all final goods and services purchased by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy. d. The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods and services purchased by consumers.

A

Which would create labor adjustment costs? a. higher gas prices that hurt SUV manufacturers but create a boom in the hybrid industry b. an increase in the number of foreign workers entering the country c. a cultural shift that influences more students to attend college d. a major recession

A

Price Ceiling

A maximum price allowed by allowed

If V = 4%, P = 3%, & Yr = 2%, then M must equal: a. 7%. b. 1%. c. 6%. d. 2%.

B

In the basic model that includes the AD and LRAS curves only, a shock that reduces the velocity of money by 2 percentage points causes: a. a decrease of the inflation rate by less than 2 percentage points. b. a decrease of the inflation rate by 2 percentage points. c. an increase of the inflation rate by 2 percentage points. d. an increase of the inflation rate by less than 2 percentage points.

B

In the basic model that includes the AD and LRAS curves only, shocks to aggregate demand always cause changes in: a. neither real GDP growth nor inflation. b. inflation only. c. real GDP growth only. d. both real GDP growth and inflation.

B

A real price is: a. the average number of times a dollar is spent on final goods and services in a year. b. an increase in the average level of the price of a good. c. a price that has been corrected for inflation. d. a decrease in the average level of the price of a good.

C

A real shock is any shock that increases or decreases the growth rate of: a. nominal GDP. b. real GDP. c. potential GDP. d. prices.

C

An increase in _____ will shift the SRAS curve. a. neither actual inflation nor expected inflation b. actual inflation, but not expected inflation c. expected inflation, but not actual inflation d. both actual inflation and expected inflation

C

As the baby boomers retire, the United States labor force participation rate will: a. fluctuate unpredictably. b. remain the same. c. decrease. d. increase.

C

Collateral damage occurs more frequently during: a. expansions when capital stock becomes outdated and useless. b. expansions when real assets need to be redeployed. c. recessions when capital stock loses value through market forces. d. recessions when discouraged workers neglect the capital stock.

C

During recessions the unemployment rate: a. remains relatively constant. b. fluctuates randomly. c. increases. d. decreases.

C

If the money supply is $375 million, the velocity of money is 5, and real GDP is $12.5 million, what is the average price level? a. 50 b. 100 c. 150 d. 12.

C

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005. a. increased 20% b. increased 10% c. decreased d. remained the same

C

In the AD-AS model, what happens to the economy in the short run when consumer spending decreases? a. Inflation is lower, and the real growth rate is higher. b. Inflation is higher, and the real growth rate is lower. c. Inflation is lower, and the real growth rate is lower. d. Inflation is higher, and the real growth rate is higher

C

Inflation is: a. a decrease in the average level of prices. b. the average number of times a dollar is spent on final goods and services in a year. c. an increase in the average level of prices. d. when people mistake changes in nominal prices for changes in real prices.

C

Intertemporal substitution refers to: a. the decision on how to allocate time between work and leisure. b. the decision to substitute one television show for another during the same time slot. c. the tendency to work more when the returns to work are higher. d. the preference for households to smooth their consumption over time.

C

Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid? a. 2% b. 5% c. 3% d. 7%

C

Labor adjustment costs refer to the costs of: a. firing unproductive workers. b. pay raises for productive workers. c. moving workers from declining industries to growth industries. d. hiring and training workers.

C

The Solow growth rate is the economy's: a. recessionary growth rate. b. actual growth rate. c. potential growth rate. d. expansionary growth rate.

C

The condition of time bunching implies that: a. the decisions of some people always offset the effects of other people's decisions. b. people tend to go against what other people do. c. people tend to work and invest primarily when other people do. d. it takes a long time for people to make decisions.

C

The economic forces that amplify shocks by spreading them across time and sectors of the economy are called: a. aggregate demand conveyances. b. irreversible investments. c. transmission mechanisms. d. intertemporal substitutions.

C

The primary purpose of the AD-AS model is to explain: a. long-term economic growth. b. trends in output. c. business fluctuations. d. the steady-state output.

C

The quantity theory of money predicts that the main cause of inflation is increases in: a. real output. b. prices. c. the money supply. d. consumption.

C

Uncertainty magnifies negative shocks by: a. increasing the number of irreversible investments. b. providing clear investment signals. c. keeping resources in unproductive areas. d. slowing the speed of transmission of the negative shocks.

C

Unemployment correlated with the business cycle is called: a. frictional unemployment. b. seasonal unemployment. c. cyclical unemployment. d. structural unemployment.

C

When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing: a. high disinflation. b. deflation. c. hyperinflation. d. falling GDP per capita.

C

When workers lose their jobs and become officially unemployed, the labor force participation rate: a. changes unpredictably. b. increases. c. remains constant. d. decreases.

C

Which of the following is NOT true of structural unemployment? a. It is persistent over time. b. It results from industry restructuring. c. It results from scarcity of information. d. It is long-term in duration.

C

Which of the following most likely causes a shift of the long-run aggregate supply curve to the right? a. a decrease in tax revenues b. an increase in the money supply c. an increase in crop production due to more rainfall d. an increase in oil prices due to a fire in a major oil refinery

C

An unexpected increase in export growth is a: a. factor that has no impact on AD in the short run. b. negative AD shock. c. shock that is always matched by an equal decrease in import growth. d. positive AD shock.

D

Collateral is: a. the cost of shifting workers from declining sectors of the economy to the growing sectors. b. the tendency for economic activities to be coordinated at common points in time. c. the allocation of consumption, work, and leisure across time to maximize well-being. d. a valuable asset that is pledged to a lender to secure a loan.

D

During a recession, lending typically declines because: a. there is more demand for investment funding. b. banks need to hold less as a cushion for themselves. c. there are fewer collateral shocks. d. asset prices fall and therefore the net worth of firms declines as well, making them look riskier to banks.

D

Every night, resources at your school—classrooms, desks, etc.—are unemployed. This is an example of: a. labor adjustment costs. b. irreversible investment. c. collateral damage. d. time bunching.

D

which country holds the world record for Hyperinflation

Hungary

Who is the current FED chair

Janet Yellen

Price controls

Laws making illegal for prices to move above a maximum price or below a minimum price

What are the Aggregate Supply/Demand graph labels Top left: Bottom Right:

TL: Inflation rate or Pi BR: change in Yr

What are the loanable funds graph labels Top left: Bottom Right:

TL: Interest Rates BR: Loanable Funds

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. How many people in this country are in the labor force? a. 30 million b. 25 million c. 20 million d. 15 million

c

If the interest rate increases, then: a. both the quantity saved and the quantity supplied of loanable funds will decrease. b. the quantity saved will decrease but the quantity supplied of loanable funds will increase. c. the quantity saved will increase but the quantity supplied of loanable funds will decrease. d. both the quantity saved and the quantity supplied of loanable funds will increase.

d

The main reason people save during their working years is: a. a preference toward matching income with spending over time. b. an expectation that they will die early. c. a high time preference for the present. d. a preference toward a smooth consumption path over time.

d

Which of the following represents ownership in a corporation? a. IOUs b. bonds c. saving deposits d. stocks

d

Which of the following would the BLS define as a discouraged worker? a. Susan, who has been unemployed for the past three years and is looking for a part-time job b. Robert, a retired teacher, who works full time as a greeter at a discount store c. Quinton, who has a doctorate in chemistry, but works full time as a taxi driver d. Mary, who was laid off last year and who was looking for a full-time job until last month

d

the portion of the adult, non-institutionalized civilian population working or actively looking for work

labor force

money is neutral in the _________ run

long

M x V = P x Yr What is P

price level

M x V = P x Yr What is M

quantity of money in the economy

M x V = P x Yr What is V

rate at which money changes hands

____________ is income that is not spent on consumption goods.

savings

Which of the following is NOT part of natural unemployment? a. cyclical unemployment b. frictional unemployment c. frictional and structural d. structural unemployment

A

Collateral shocks tend to amplify business cycles because: a. assets are typically worth more in booms than in recessions and the value of assets tends to be positively correlated to firms' ability to obtain investment funding. b. the returns to work are higher in booms than in recessions, so people work more during booms and less during recessions. c. the returns to investment are higher when others are investing as well; thus we see more investment during booms and less during recessions. d. the uncertainty of recessions tends to increase people's job search time, while greater certainty decreases search time during booms.

A

Debt monetization means that a government pays off its debt by: a. increasing the money supply. b. raising tax revenues. c. lowering inflation. d. borrowing from foreigners.

A

Holding everything else constant, an increase in the growth rate of the money supply will cause the aggregate demand curve to: a. shift outward. b. shift inward. c. not shift at all. d. shift randomly

A

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be: a. 8.33%. b. 7.69%. c. 9.23%. d. 10%.

A

In a small economy, the money supply is $400,000, and the velocity of money is 3. The current average price level in the economy is 1. What is the level of real GDP in this economy? a. $1.2 million b. $1.6 million c. $133,333 d. $400,000

A

Intertemporal substitution tends to amplify business cycles because: a. the returns to work are higher in booms than in recessions, so people work more during booms and less during recessions. b. many people are hesitant to change jobs during recessions and thus resources are stuck in less productive uses. c. the returns to investment are higher when others are investing as well, thus we see more investment during booms and less during recessions. d. assets are typically worth more in booms than in recessions.

A

Irreversible investments can be costly because they: a. involve sunk costs. b. involve a large number of workers. c. are intertemporal. d. are expensive.

A

Other things held constant, an increase in the velocity of money will cause the aggregate demand curve to: a. shift outward. b. not shift at all. c. shift randomly. d. shift inward.

A

The supply of labor: a. increases during a boom and decreases during a recession. b. decreases during booms and recessions alike. c. increases during booms and recessions alike. d. decreases during a boom and increases during a recession.

A

Time bunching is: a. the tendency for economic activities to be coordinated at common points in time. b. a reduction in the value of collateral. c. the allocation of consumption, work, and leisure across time to maximize well-being. d. the cost of shifting workers from declining sectors of the economy to the growing sectors.

A

When the expected rate of inflation is higher than the actual rate of inflation, wealth is: a. redistributed from borrowers to lenders. b. not redistributed at all. c. redistributed from lenders to borrowers. d. redistributed at random.

A

Which of the following individuals is practicing intertemporal substitution? a. Malika decides to stop being a stay-at-home mother and enters the workforce because the economy is booming. b. The United States enters a recession, and Tashika loses her job. c. Sharona decides to stop being a stay-at-home mother and enters the workforce to get extra money for future college expenses. d. Anneliese studies continuously throughout the semester for her final exams.

A

According to the quantity theory of money, an increase in the money supply causes an increase in _____ over the long run. a. the velocity of money b. prices c. production d. real GDP

B

Labor adjustment costs help amplify the initial negative shock by: a. blocking employment search efforts. b. keeping the unemployment rate high. c. discouraging irreversible investments. d. sending inflation higher.

B

Money illusion is: a. the average number of times a dollar is spent on final goods and services in a year. b. mistaking changes in nominal prices for changes in real prices. c. a decrease in the average level of prices. d. an increase in the average level of prices.

B

Sticky wages and prices: a. reduce the impact of negative shocks. b. increase the impact of positive shocks. c. offset the impact of positive shocks. d. have no effect on the impact of negative shocks.

B

Suppose the nominal GDP of a country is $500 billion. If the velocity of money in the country is 10, then the country's money supply will equal: a. $5,000 billion. b. $50 billion. c. $510 billion. d. $490 billion.

B

The average number of times a dollar is spent on final goods and services during a year is the: a. consumption rate. b. velocity of money. c. money supply. d. quantity theory of money.

B

The persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy is called: a. frictional unemployment. b. structural unemployment. c. seasonal unemployment. d. cyclical unemployment.

B

Which of the following is a real shock that contributed to the economic contraction during the Great Depression? a. tax cuts b. widespread bank failures c. a reduction in tariff and other trade restrictions d. an increase in money supply growth

B

Which of the following is an example of money illusion assuming that inflation is 5%? a. You do not receive a raise at your part-time job but cut out some expenses as you notice some prices rising. b. You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend. c. You receive a 5% raise at your part-time job but do not increase or decrease your spending. d. You receive a 10% raise at your part-time job and start spending extra money on entertainment every weekend.

B

With respect to real output, in the long run, money is: a. velocity. b. temporary. c. neutral. d. expansionary.

C

A hurricane that damages buildings and roadways along the Gulf Coast is considered a: a. negative demand shock. b. positive demand shock. c. positive real shock. d. negative real shock.

D

Minimum wage laws and unions tend to: a. lower wages and raise unemployment. b. lower wages and lower unemployment. c. raise wages and lower unemployment. d. raise wages and raise unemployment.

D

The position of the long-run aggregate supply curve shows the economy's: a. expected inflation rate. b. rate of money growth plus velocity growth. c. long-run inflation rate. d. potential growth rate given by the real factors of production.

D

The primary reason we think of inflation as bad even when wages rise with it is that it: a. increases the velocity of money. b. leads to lower real wages. c. makes things more expensive for consumers. d. distorts the information delivered by prices.

D

What factors triggered the Great Depression? a. decreased inflation and increased income taxes b. decreased employment and increased money supply c. decreased investment and increased inflation d. decreased consumer spending and tight monetary policy

D

M x V = P x Yr What is Yr

Real GDP

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's labor force participation rate? a. 66.7% b. 83.3% c. 75% d. 50%

a

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's unemployment rate? a. 25% b. 16.7% c. 40% d. 10%

a

Which of the following chains of logic explain the functions of banks in the process of economic growth? a. Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth. b. Firms borrow from stock and bond markets issued through banks. These funds are used for investment, which leads to the capital accumulation that furthers economic growth. c. The demand for loanable funds is determined by banks and that demand fuels investment that in turn furthers economic growth. d. Savers deposit their savings in banks. Banks engage in capital accumulation, which plays an important role in economic growth.

a

Which of the following is considered unemployed? a. John, on temporary layoff from his work, awaits recall. b. Joe, a retired college professor, does community volunteer work. c. Jason, a full-time college student, is looking for a part-time job. d. Julie, a full-time housewife, is searching for a part-time position.

a

Bond prices and bond interest rates move: a. together when there is collateral damage. b. in opposite directions. c. in the same direction. d. together when there is arbitrage.

b

Financial intermediaries: a. profit by keeping resources in their least valuable uses. b. reduce the costs of moving savings from savers to borrowers and investors. c. have liabilities that exceed their assets. d. are inefficient middlemen, raising the cost of economic activity.

b

Frictional unemployment is best defined as: a. long-term unemployment caused by changing features of an economy. b. short-term unemployment caused by difficulties of matching employees to employers. c. a normal level of unemployment caused by high wages. d. unemployment caused by cyclical conditions of an economy.

b

_____________ unemployment - the deviation of unemployment from its natural rate

cyclical

If individuals become more impatient, what will happen in the market for loanable funds? a. The supply of loanable funds will decrease, interest rates will fall, and the quantity of saving and borrowing will increase. b. The supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease. c. The supply of loanable funds will increase, interest rates will fall, and the quantity of saving and borrowing will increase. d. The supply of loanable funds will increase, interest rates will rise, and the quantity of saving and borrowing will decrease.

b

If the government raises taxes on investment returns, then: a. the supply of loanable funds will decrease and the equilibrium interest rate will increase. b. the demand for loanable funds will decrease and the equilibrium interest rate will decrease. c. the supply of loanable funds will increase and the equilibrium interest rate will decrease. d. the demand for loanable funds will increase and the equilibrium interest rate will increase.

b

Insecure property rights typically lead to: a. a decrease in the demand to borrow. b. a decrease in the supply of savings. c. an increase in the supply of savings. d. an increase in the demand to borrow.

b

Someone who recently moved to Florida because of its warmer climate will need to spend some time looking for a new job. This is an example of: a. structural unemployment. b. frictional unemployment. c. cyclical unemployment. d. underemployment.

b

Time preference is the desire to: a. save for a time when income will be reduced. b. have goods and services sooner rather than later. c. maximize return on investment in the shortest amount of time. d. increase longevity in order to have a greater income

b

Which of the following is TRUE about the lifecycle theory of savings? a. People tend to save during the early years of their lifetimes, borrow during their prime working years, and invest during their retirement years. b. People tend to borrow during the early years of their lifetimes, save during their prime working years, and dissave during their retirement years. c. People tend to save during the early years of their lifetimes, dissave during their prime working years, and borrow during their retirement years. d. People tend to borrow during the early years of their lifetimes, invest during their prime working years, and save during their retirement years.

b

An unemployed person is one who: a. is not willing to work even though he or she is able to. b. stays at home and is not looking for work. c. does not have a job but is actively looking for one. d. works for a job that pays less than he or she expected.

c

At lower interest rates, the cost of investing _____ and the quantity of funds demanded for investment _____. a. increases; increases b. decreases; decreases c. decreases; increases d. increases; decreases

c

The process in which bank loans are bundled together and sold on the market as financial assets is called: a. consolidation. b. aggregation. c. securitization. d. grouping.

c

Which of the following is NOT a reason for the financial crisis of 2007-2008? a. collapse of the shadow banking system b. increases in the leverage ratios for financial intermediaries c. excessive confidence about the stock market d. excessive securitization of liabilities

c


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