Macro Econ - Final Exam

Suppose that the states of Oregon and Washington are both producing two goods, apples and pears. Washington can produce either 100 apples or 20 pears Oregon can produce either 12 apples or 2 pears What is the opportunity cost of producing an apple in Oregon

2/12= 1/6 0r .17

Suppose that the states of Oregon and Washington are both producing two goods, apples and pears. Washington can produce either 100 apples or 20 pears Oregon can produce either 12 apples or 2 pears What is the opportunity cost of producing an apple in Washington

20/100= 1/5 0r 0.2

Suppose that the U.S. can produce 1,000 cars for every 250 avocados. What is the opportunity cost for each car

250/1,000= .25

With the short-run aggregate supply model, input prices are assumed to be flexible and output prices are assumed to be sticky

False - input are sticky, output flexible

The benefits and costs of international trade are estimated to be roughly equal

False - trade is beneficial

Of the national debt of the U.S., the clear majority is owed to the Chinese government

False, owed to U.S citizens

Unemployed workers who voluntarily quit their jobs to search for a better position are categorized as ________ unemployed

Frictionally

On the basis of GDP, what is the economic growth rate from 2017 to 2018? Round 2017 2018 2019 Population 10000 12000 15000 Full time workers. 4500 4600 4700 part time workers 250 350 500 discouraged workers 100 200 700 unemployed workers 50 50 80 consumer price index 100 105 111 GDP 10,000,000 10,350,000 10,500,000

Growth Rate = GDP Yr 2 - GDP Yr 1 / GDP Yr 1 10,350,000-10,000,000/10,000,000= 3.5

The Federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the amount of private investment and consumption spending is reduced. This illustrates the

crowding out effect

suppose that a person is laid off after their employer faces difficulty due to the recession. Which type of unemployment is this describing

cyclical

When a nation is experiencing full employment

cyclical unemployment is zero

the interest rate effect suggest that

an increase in the price level will increase the demand for money, increase interest rates and decrease consumption and investment spending

Suppose that the United States places tariffs on German bicycles. as a result, we would expect

consumers in the u.s to purchase more American bikes, the price of German bicycles to increase in the u.s, employment to decrease in the German bicycle industry. All of these answers are correct

in terms of GDP calculations, what is investment

spending on physical capital, construction of new buildings, or positive changes in inventories

If you deposit money that you've earned into a savings account so that it is available for a future date, you are using money primarily as a

store of value

3 essential functions of money

store of value medium of exchange unit of account

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing

structural unemployment

When governments use expansionary fiscal policy, which of the following is the expected short-run result

increase economic output and a higher price level

On a graph, what is the impact of expansionary monetary policy

increase in aggregate demand

An appropriate fiscal policy for a severe recession is

increase in government spending

the foreign purchases effect(also known as the net exports effect) suggest that a decrease in the U.S price level relative to other countries will

increase the U.S exports and decrease U.S imports

When the the Fed buys bonds, the money supply ____

increases

an rationale sometimes cited for protectionism is that domestic firms need help in developing and that protectionism can help a nations business become industry leaders in the future

infant industry argument

Which are examples of macroeconomic topics

inflation, economic growth, GDP

The value of money varies

inversely with the price level

which component of GDP includes inventory changes

investment

Which statement regarding the relationship between physical capital and economic growth is true

investments in machinery helps all economies but helps more in nations with lower levels of capital

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

The rule of 70 shows

the number of years that it will take GDP to double at current growth rates

According to comparative advantage, a good should be produced in that nation where

the opportunity cost is lower

An increase in the reserve ratio increases the

the percentage of deposits that commercial banks must keep rather than lend

when inflation occurs

the purchasing power of saved sums of money declines

which Is the most accurate interpretation of the import demand curve

the relationship between the price of a good and the amount of the good that a nation imports

The labor force is defined as

the total number of employed and unemployed

Which item below refers to a barter exchange

trading a taco for a cup of coffee

The low point of a business cycle is called the

trough

A central bank controls the amount of money in circulation in an economy

true

Canadian dollars are an example of fiat money

true

Credit unions are similar to commercial banks but sometimes have membership restrictions and can offer slightly better terms/rates

true

Economic activity using barter requires a double-coincidence of wants

true

One effect of tariffs are higher prices for consumers

true

Real estate is an example of an asset which is not very liquid

true

Today, the use of commodity money is less common than the use of fiat money.

true

increases in per capita GDP are associated with increases in the average standard of living

true

the aggregate demand curve shows that inflation leads to a reduction in the total level of expenditure in the economy

true

the gains from international trade come from comparative advantage rather than absolute advantage

true

when a nations autarky price is the same as the world price, the nation will neither export nor import the good

true

when a nations population increases, GDP usually increases too

true

when a tariff is imposed on a good, domestic consumption of that good declines

true

when disinflation occurs, prices are rising but at a lower rate than a previous years

true

when two nations engage in international trade, each country will necessarily have a comparative advantage in the production of one good

true

What does the term underemployment represent

when a person has a job that does not align with their human capital

When is it appropriate to use contractionary monetary policy

when inflation is a concern

The real-balances, interest-rate, and foreign purchases effects all help explain

why the AD demand curve slops down

How are the 3 big questions of economics addressed in the U.S

with markets in some cases and government provision in some cases

people are considered employed id they are

working part time but hoping to work full time

Consider the table below showing various components of spending in an economy What is the GDP in this nation? Personal consumption 1,000 Gross private domestic investment 400 exports 200 imports 100 government purchases 300 capital consumption allowance 250

1,000+400+(200-100)+300= 1800

Suppose that the U.S. can produce 1,000 cars for every 250 avocados. What is the opportunity cost for each avocado

1,000/250 = 4

Suppose that the discount rate is 2%, the required reserve ratio is 4%, and the prime interest rate is 7%. By how much will the money supply increase if the Fed puts an additional $3,000,000 into circulation?

1/.04= .25 .25x 3,000,000= 750,000

Suppose that the prime interest rate is 4%, the federal funds rate is 5%, the discount rate is 6%, and the required reserve ratio is 7%. In this case, what is the money multiplier

1/.07=14.29

Suppose that the states of Oregon and Washington are both producing two goods, apples and pears. Washington can produce either 100 apples or 20 pears Oregon can produce either 12 apples or 2 pears What is the opportunity cost of producing a PEAR in WASHINGTON

100/20 = 5 Pears

Suppose that the states of Oregon and Washington are both producing two goods, apples and pears. Washington can produce either 100 apples or 20 pears Oregon can produce either 12 apples or 2 pears What is the opportunity cost of producing a PEAR in OREGON

12/2=6 Pears

(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative (action) lag is reflected in events

3 and 4

What is the unemployment rate in 2019? 2017 2018 2019 Population 10000 12000 15000 Full time workers. 4500 4600 4700 part time workers 250 350 500 discouraged workers 100 200 700 unemployed workers 50 50 2300 consumer price index 100 105 111 GDP 10,000,000 10,350,000 10,500,000

4700+500+2300= 7500 2300/7500=.30666667x100= 30.67

(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The operational (effect) lag is reflected in events

5

2018 2019 2020 Nominal $2,291 $8,551 Real GDP $4,500 $5,865 GDP Deflator 86.1. 112.7 What is the Nominal GDP in the year 2019? Round 2 decimal places

5,865 x 86.1 = 504,976.5/100 (always 100) = 5,049.77

2018 2019 2020 Nominal $2,291 $8,511 Real GDP $4,500 $5,865 GDP Deflator 86.1 112.7 What is the Real GDP in the year 2020? Round 2 decimal places

8,511 x 100(always)/112.7= 7,551.91

The nation of Workovia has a population of 15 million, of whom, 10 million are in the labor force and 9 million are working. Workovia unemployment rate is __ percent

9 million

Which of the following would most likely shift the aggregate demand curve to the right

An increase in stock prices that increases consumer wealth

Which of the following best describes the built-in stabilizers as they function in the United States

Built-in stabilizers function in a similar way to fiscal policy but are not subject to the same lags

John expects to get a raise equal to the increase in the consumer price index (CPI). The CPI has gone from 160 to 164. If Johns salary last year was 50,000, what salary does he expect to earn this year.

COME BACK TO THIS

Suppose that the discount rate is 2%, the required reserve ratio is 4%, and the prime interest rate is 7%. What is the value of the money multiplier if the Fed puts an additional $3,000,000 into circulation?

COME BACK TO THIS

Based on the information below, what is the value of M1 Checking Account Deposits: 400 Savings Account Deposits: 500 Currency in Circulation: 300 Gold Bars:300 Sum of all Credit Card Balances: 1500 Existing Traveler's Checks: 5 Real Estate Holdings: 2000 Small Denomination Time Deposits: 50 Money Market Mutual Fund Accounts: 50

Checking Account Currency in circulation existing travelers checks 400+300+5= 705

Based on the information below, what is the value of M2 Checking Account Deposits: 400 Savings Account Deposits: 500 Currency in Circulation: 300 Gold Bars:300 Sum of all Credit Card Balances: 1500 Existing Traveler's Checks: 5 Real Estate Holdings: 2000 Small Denomination Time Deposits: 50 Money Market Mutual Fund Accounts: 50

Checking Account savings account Currency in circulation existing travels checks Small denomination time deposits money market mutual fund 400+500+300+5+50+50=1,305

What happens if the discount rate is reduced

Commercial banks can borrow money from the Federal Reserve at a lower interest rate

Suppose that the discount rate decreases. Which of the following will occur as a result

Commercial banks will borrow more money from the Fed and the money supply will increase correspondingly

an increase in ______ is the best evidence for inflation

Consumer price Index

What is the role of deposit insurance in the banking industry

Deposit insurance reduces the incentive to withdraw money and therefore makes bank panics less likely

Which of the following terms describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year?

Disinflation

In Guns,Germs and Steel, Jared Diamond argues that the main reason that growth rate in Papua New Guiena has been low because the country has not invested in education

FALSE

When Mr.Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr.Wilson does his own cleaning. What is the effect on GDP?

GDP falls as a result of this change

What is the per capita GDP in 2018. Round 2017 2018 2019 Population 10000 12000 15000 Full time workers. 4500 4600 4700 part time workers 250 350 500 discouraged workers 100 200 700 unemployed workers 50 50 80 consumer price index 100 105 111 GDP 10,000,000 10,350,000 10,500,000

GDP/Population 10,350,000/12000= 863

Consider how many years are expected to elapse before GDP has doubled 2017 2018 Population 10000 12000 Full time workers. 4500 4600 part time workers 250 350 discouraged workers 100 200 Retired people 50 50 consumer price index 100 105 GDP 10,000,000 10,350,000

Growth Rate = GDP yr 2 - GDP yr 1/GDP yr 1 10,350,000-10,000,000/10,000,000=3.5% GDP to double. 70 Rule 70/3.5 = 20

Which definition of the money supply is the most restrictive

M1

How is monetary policy different than fiscal policy

Monetary policy refers to changes in the money supply; fiscal policy refers to changes in taxes and government spending

Suppose that the prime interest rate is 4%, the federal funds rate is 5%, the discount rate is 6%, and the required reserve ratio is 7%. In this case, by how much will the money supply increase if the Federal Reserve puts an additional $2,000 into circulation.

Money multiplier x 2,000 14.29 x 2,000 = 28,580

which of the following scenarios best represents discouraged workers

Nick, an actor who is out of work and has stopped seeking new auditions because he feels it unlikely that he'll find work

Which is the most frequently used tool of monetary policy

Open market operations

What is the inflation between 2018 and 2019 2017 2018 2019 Population 10000 12000 15000 Full time workers. 4500 4600 4700 part time workers 250 350 500 discouraged workers 100 200 700 retired people 800 2000 2300 consumer price index 100 105 111 GDP 1,000,000 1,350,000 1,500,000

Price Index Yr 2- Price Index Yr 2/Price Index Yr 1 x 100 111-105/105x100= 5.71

what is the difference between real GDP and Nominal GDP

Real GDP accounts for changes in the price level; Nominal does not

_________ unemployment is the result of changes in the business cycle

Seasonal

the catching up effect predicts that nations with lower levels of GDP will have higher growth rates than nations with higher levels of GDP

TRUE

Suppose that an analyst is concerned that fiscal policy is ineffective because of the existence of lags. What does this mean

That fiscal policy is of limited effectiveness because its benefits aren't experienced immediately but instead after some time has elapsed

Which statement regarding the Federal Reserve is true

The Federal Reserve has a great deal of freedom in choosing the policies that it deems appropriate

The GDP deflator for the base year is

always equal to 100

A nation's long-run average supply curve can shift when a change to a a nations's resource endowment takes place

True

Fractional reserve banking can lead to bank panics

True

Chris 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, Chris is

Unemployed

Based on the above information, what statement is true

Washington has a comparative advantage in pears, Oregon has a comparative advantage in apples

which item should NOT be counted for GDP calculations

a USED bike that Brian purchased to treat himself

What is the impact of a reduction in government spending

a decrease in AD

the real balances effect indicated

a higher price level will decrease the real value of many financial assets and therefore reduce spending

Which of the following is not an example of gross domestic investment

a households purchase of shares of Google stock

When economists say that money is a unit of account, they mean that it is

a monetary unit for measuring and comparing the relative values of goods

Which item listed below is likely to be the least liquid

a rare and valuable painting

When economists say that money serves as a store of value, they mean that it is

a way to keep wealth in a readily spendable form for future use

Which of the following is least likely to be a problem for monetary policy

admin lag

According to the circular flow model, the value inputs sold in resource markets and the value outputs sold in product markets

are approximately equal

Retirees and creditors

are hurt by inflation because their purchasing power is reduced

Tariffs

are taxes applied to imported goods

In a fractional reserve banking system

banks can create money through the lending process

The federal funds rate is the interest rate charged by

banks for loans to other banks

Which item is an example of fiat money

bit coin

which is an example of a non-tariff barrier

box by box inspection requirements for imported fruit

The amount by which Federal government expenditures exceed Federal tax revenues during a particular year is the

budget deficit

One of the strengths of monetary policy relative to fiscal policy is that monetary policy

can be implemented more quickly

Which of the following is a tool of monetary policy

changes to the discount rate

Which item is an example of commodity money

cigarettes

In recent years, the group with the lowest unemployment rate in the United States was

college graduates

Which type of institution accepts deposits and offers banking services like checking accounts, savings accounts, and debit cards

commercial banks (ie chase, Wells Fargo)

countries engaged in international trade specialize in production based on

comparative advantage

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to _______, which will ___________ investment spending.

decrease, increase

The crowding-out effect of expansionary fiscal policy suggests that

deficit spending can lead to decreases in private investment or consumptio

a person who is interested in finding a job but has stopped looking for work because they do not feel it likely that they will find work is called

discouraged worker

In the United States, people are considered unemployed if and when they

do not have a job but are available for work and have been actively seeking work

GDP measures the final value of goods and services produced to avoid the problem of

double counting

Which of the following is true about the business cycle

each cycle is unique

Which item is included in M1 but not M2

everything in M1 is included in M2

the two approaches used by the government in estimating GDP are

expenditure and income

Consider the table below showing various components of spending in an economy What is the value of net exports in this nation? Personal Consumption 1,000 Gross private domestic investment 400 Exports 200 Imports 100 Government purchases 300 capital consumption allowance

exports-imports 200-100= 100

An advantage of monetary policy is that lags do not exist

false

Central banks sometimes experience bank panics and therefore deposit insurance has been created to limit the likelihood of these events happening

false

Commodity money is used more frequently than fiat money because it does a better job of limiting transaction costs

false

If a nation with an absolute advantage in a particular good then it will also have a comparative advantage in the good

false

Presently, the central bank of the U.S. is pursuing a contractionary monetary policy

false

The central bank of the United States is the U.S. Treasury

false

The public elects the chair of the Federal Reserve System

false

The value of M1 will be larger than the value of M2 if there are substantial deposits in checking accounts

false

the U.S economy uses markets to provide all goods and services

false

under autarky, nations typically have had a trade surplus

false

when an economy is producing at full capacity, the unemployment rate falls to around 0

false

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes

foreign purchases effect

Modern banking systems are usually based upon _____

fractional reserve banking system

______ unemployment includes workers who voluntarily quit their jobs to search for better positions

frictional

Inflation is a

general rise in prices

Which of the following activities is an example of non-market transactions

growing your own food in a vegetable garden

which of the following groups benefit from an unanticipated rise in the inflation rate

homeowners who have borrowed money through a fixed-rate mortgage

Which group benefit from an unanticipated rise in the inflation rate?

homeowners with fixed rate mortgages

suppose the domestic price of copper is 1.20 a pound in the U.S while the world price is 1 pound. Assuming no transportation costs, the U.S will

import copper

Country A limits other nations exports to Country A to 1,000 tons of coal annually. This is an example of

import quota

in the recent years the united states

imported more goods than it exported

in the theory of comparative advantage, a good should be produced in that nation where

it cost is least in terms of alternative goods that might otherwise be produced

When the Fed buys a U.S. bond in the open market

its action expands total reserves and the money supply

when changes occur in a country that lead to the economy having a higher capacity for producing goods and services, is called

long term economic growth

Which item represents expansionary monetary policy

lowering the discount rate

Which monetary policy tool is used most often in the U.S.

making sales and purchases of government bonds

which is a negative consequence associated with inflation

menu costs

On which item does the federal government of the U.S. spend the most

military/national defense

What happens if the required reserve ratio is reduced

money multiplier will increase

which of the following values is an example of a non market transaction not included in the national income and product accounts

mowing your lawn

Suppose that John has 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, John is

not in the labor force

Open market operations ______

occur when central banks lend to commercial banks

In what way do commercial banks help economic activity

payment intermediation, by giving people additional methods to purchase goods and services, by brining together borrowers and lenders to loans all answers are correct

The high point of a business cycle is called the

peak

Taxes on imported goods that help shield domestic producers from foreign competition are called

protective tariffs

Pick another policy that would be appropriate to address concerns about inflation

raising the rrr

the factors that explain why the AD curve takes its particular pattern are

real balances, interest rate, and foreign purchases effect

A major advantage of the built-in or automatic stabilizers is that they

require no legislative action by Congress to be made effective.

The members of the Federal Reserve Board of Governors

serve 14 year terms, in a 12 federal reserve banks

the aggregate demand curve

shows the amount of real output that will be purchased at each possible price level

a production function

shows the output that is produced using different combinations of inputs combined with existing technology

Which item is included in M2 but not M1?

small denomination time deposits

A progressive tax

takes a larger share of income from wealthier people

which statement is consistent with the employment argument for protectionism

tariffs and quotas are appropriate to make sure that there are enough jobs for domestic workers

Who controls the money supply in the U.S.

the FED

suppose that the unemployment increases from 5 to 8 percent. What conclusion can be made about the labor force participation rate?

the Labor force participation rate has gone up

the capital to labor ratio measures

the amount of physical capital per worker

when comparing the benefits and costs to international trade, studies show that

the benefits exceed the costs

In the U.S., money has value because _____

the confidence that people have in dollars

In the United States, our principal measure of inflation is

the consumer price index

Which statement regarding the Federal Reserve is false

the fed is subject to close supervision by congress

Pick the policy that would be appropriate to address concerns about inflation

the fed selling bonds