Macro Economics Final Exam

In Lecture #12, we saw that the standard of living is a function of labor productivity. Ceteris paribus, which of the following factors below would most likely lead to an increase in labor productivity and hence the standard of living?

A better-educated workforce

Given what you know about the riskiness of various bonds (and the yields on them), which bond is likely to have the highest yield (assume that all have the same maturity term)?

A. A "junk" bond issued by a financially shaky company.

Given the manner in which we calculate the "standard of living," and the various types of unemployment, ceteris paribus, it follows that the ______ is a direct determinant of a country's standard of living (although it could be decreasing overtime); and ______ in a modern developed economy.

A. Labor Force Participation Rate; some degree of frictional unemployment is inevitable

Suppose the U.S. Congress passed, and the president signed, legislation that encouraged U.S. taxpayers to consume more and save less. As a likely consequence of this legislation, the loanable funds model would predict, ceteris paribus:

higher interest rates and less investment.

Ceteris paribus, as the government increases an excise tax imposed on a good starting from zero, the deadweight loss incurred by this tax will (Note: the market for this good satisfies all standard assumptions and there is no market failure without intervention)

increase until a maximum is reached.

The market for wheat is characterized by an inelastic demand and an elastic supply. What would happen to the deadweight loss of a tax, ceteris paribus, if the demand became more elastic?

increase.

When a tax is levied on a good, the buyers and sellers of the good share the burden regardless of how the tax is levied. Moreover,

it depends on the price elasticities of demand and supply and the party with lower elasticity bears more tax burden

To characterize "club good", we say they have some special characteristics. These special characteristics are referred to as _______ and _______.

non-rival; exclusive

The labor force equals the

number of people employed plus the number of people unemployed

. Suppose that in some state the civilian, non-institutionalized adult population is 4million, the labor force participation rate is 75%, and 250,000 people are unemployed. What is the unemployment rate (to the nearest tenth)?

8.3%

The table below reports nominal and real GDP for the U.S. from 1929 to 1932

9.16, -10.3

If the consumer price index is 200 in year 1980 and 300 today, then $ 600 in 1980 has the same purchasing power as ___ today.

900

In which case below is the real interest rate the highest?

the nominal interest rate = 2% and inflation = -1%

According to the Efficient Market Hypothesis, ceteris paribus, if a company were to release information that was worse than "Wall Street expected" (i.e. a piece of unexpected information were about to release to the general public), then it follows tha

the price of the company's stock would most likely fall within a very short time

A nation's standard of living is determined by

the productivity of its workers.

When the money market is drawn with 1/P on the vertical axis, an increase in the money supply causes the equilibrium value of money

to decrease, while the equilibrium quantity of money increases.

When we measure and record economic value, we use money as the

unit of accounT

GDP is defined as the

value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time

Suppose the consumer price index (CPI) accurately measures inflation, and assume that the CPI increased from 100 in 1985 to 210 in 2015. If your nominal annual salary increased from $50,000 to $75,000 over that same period of time, then, ceteris paribus:

your real purchasing power of salary has decreased between 1985 and 2015 on average.

Currently, in the U.S. economy, the largest component on the expenditures side of the GDP equation is typically _____; whereas on the income side of the equation the largest component is typically _____.

consumption; wages and salaries

An important function of the U.S. Federal Reserve is to

control the supply of money.

Money (commodity money, fiat currency, etc.)

could be the most liquid asset

True or False: Inflation going up tends to make lender better off and borrower worse off

false

Ture or False: Inflation going up tends to make lender better off and borrower worse off

false

Unemployment that exists because it takes time for workers to search for the job that suits them best is called

frictional unemployment, which partly accounts for the natural unemployment rate.

Given the three primary types of unemployment we discussed in Lecture #17, it makes sense to think of the natural rate of unemployment as the sum of _____ and _____ unemployment.

frictional; structural

You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency

has no intrinsic value. The money fulfills the function of medium of exchange

Which of the following might cause the demand curve for an inferior good to shift to the left?

a decrease in the price of a substitute

Which of the following is not included in M1?

$100 in your savings account

Suppose the following figures represent (in trillions of U.S. dollars) the components of nominal GDP for the United States in year t-n: Consumption = $8.4; Investment = $1.6; Exports = $1.4; Imports = $2.4; and Government purchases = $2.0. From this information it follows that nominal GDP in year t-n was:

$11.0

Suppose the following figures represent (in trillions of U.S. dollars) the components of nominal GDP for the United States in year t: Wages and Salaries = $8.3; Corporate Profits and Proprietors' Income = $2.7; Rent = $0.7; Interest = $0.4; and Net taxes, depreciation, and statistical discrepancy = $2.5. From this information it follows that nominal GDP in year t was:

$14.6

Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =

$2,250.

What is the total surplus decrease caused by this tax (the total surplus change before and after this tax)?

$20 million

To answer Questions 13 through 15 use the following information: Suppose that in the nation state of Songland there are 2 final goods produced in the economy - food and clothing. Suppose the economy produces 15 units of food and 5 units of clothing in 2010 (the base year), and 12 units of food and 6 units of clothing in 2015. Further suppose the price of food was $2.00 per unit in 2010, and $4.00 per unit in 2015; whereas the price of clothing was $3.00 in 2010 and $2.00 in year 2015. What was the real GDP for Songland in 2015?

$42.00

What was the nominal GDP for Songland in 2010?

$45.00

At the end of 2013, the U.S. federal minimum wage was $7.25 an hour, and the CPI was 233. In 1983, the minimum wage was $3.35, and the CPI was 100. It follows that value of the minimum wage in 1983, as measured in 2013 dollars was:

$7.80

The quantity equation (in percentage change form) is:

%ΔM + %ΔV = %ΔP + Δ%Y

What is the labor force participation rate in XYZ?

((400,000+2,600,000)/4,000,000)) x 100% = 75.0%

Suppose the consumer price index (CPI) accurately measures inflation. At the end of 2013 the U.S. CPI was 233, and at the end of 2014 it was 235, then, ceteris paribus, what was the rate of inflation (or deflation) in 2014?

(2/233) x 100% = 0.86%

Use the following information to answer questions #22 through #23. Suppose state XYZ has a total population of 4,500,000, and a working-age population of 4,000,000 citizens. Of the working age population, there are 1,000,000 people who are not employed and not actively seeking work. There are 2,600,000 people who are employed. There are also 400,000 people who are not employed but who are actively seeking work. What is the official unemployment rate in XYZ?

(400,000/(400,000+2,600,000)) x 100% = 13.3%

A closed economy has income (GDP) of $1100, government spending of $300 tax of $250, and investment of $350. What is private saving?

. $400

Suppose in 1961 your grandfather earned $12,000, and the CPI in 1961 was 30. In 2012, the CPI was 230. Ceteris paribus, it follows that your grandfather's salary in 2012 dollars equals:

. $92,000

. Suppose you were told that you could invest in three assets: (1) a large diversified portfolio of common stocks, such as the Standard and Poor's 500 Index; (2) a large diversified portfolio of U.S. corporate bonds; and (3) a portfolio of 10-year U.S. Treasury notes. Given what you know about the relative default risks associated with these assets, which of the following rankings of their long-run average annual compounded rates of returns (from highest to lowest) is correct?

. (1) > (2) > (3)

Refer to the graph on right. Which of the following is correct?.

. At P3, producer surplus is smaller than at P1.

The classical principle of monetary neutrality states that changes in the money supply do not influence_____ variables and is thought most applicable in the _____run.

. real, long

The market for gluten-free bread is characterized by an elastic demand and an inelastic supply. What would happen to the deadweight loss of a tax, if the supply would also be elastic?

.increase

Suppose your economist tells you the demand for X is given by: X=100 - 2P; and the supply of X is given by X=10 +3P; where P is the price of X. Ceteris paribus, the equilibrium price of X is _____, and equilibrium quantity exchanged is _____.

18; 64

Refer to the figure on right. The unit for vertical axis is $/hour, and the unit for horizontal axis is hundreds of workers. If the government imposes a minimum wage of $5 /hour, how many workers will be unemployed in this labor market?

2,000

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

2.5 percent

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

2.5 percent

You deposit $2000 in a savings account, and a year later you have $2,100. Meanwhile, the consumer price index rises from 200 to 216. In this case, the nominal interest rate is ___ percent, and the real interest rate is ___ today.

5, -3

How much is the excise tax / per unit tax?

50 cents per pack

The New York Federal Reserve Bank A. could be considered as a private cooperation. B.president always gets to vote at the FOMC meetings. C.is one of 12 regional Federal Reserve Banks. D. All of the above are correct.

All of the above are correct.

Country XYZ is rich; i.e. it has a high living standard (as measured by real per capita GDP); whereas Country ABC is very poor. Which of the following statement is mostly likely to be wrong?

Because country ABC is so poor, it is impossible that ABC can have a higher growth rate than XYZ.

What good is not excludable but rivaL

Common resource

Country XYZ is rich; i.e. it has a high living standard (as measured by real per capita GDP); whereas Country ABC is very poor. 13. Ceteris paribus, which of the following is most likely to explain the difference in the standard of living between these two countries?

Country XYZ has a more educated labor force than ABC.

Which of the following statement is wrong? A. Technological progress could yield ways to avoid limits of natural resources. B. Countries that start off poor tend to grow more rapidly than countries that start off rich. C. ranking of countries by income can change substantially in the long run only because of 0.3% annual differences in GDP per capita growth rates. D. Higher saving rate is guaranteed to yield a higher growth rate of real GDP per capita for a modern economy

D. Higher saving rate is guaranteed to yield a higher growth rate of real GDP per capita for a modern economy.

Suppose earlier this morning, your broker recommended you buy Greek government bonds. It follows that she thinks the market is currently _______ Greek debt, and she expects Greek bond yields to _______ in the future. (Hint: if you rationally think that the market price of some good is too high/too low now, how would you expect the market price of this good to change in the future, so that it can be back to a normal or reasonable range?)

D. under-pricing; decrease

Suppose you read the following headline in the Wall Street Journal: "Brisk Jobs Growth Puts Fed on Notice" (3/7-8/15, p. A1), and suppose in the article you read that the Labor Department's "official" "unemployment rate [U3] fell [in February] to 5.5% ..." Ceteris paribus, one would reasonably expect the:

Department's U-4 rate to be greater than 5.5%

True or false: Risk averse people have increasing marginal utility over wealth and hate risk.

False

Binding price floor creates shortage.

False (surplus)

Harry buys a bond issued by Dell, Inc., which uses the funds to buy new machinery for one of its factories. In the language of macroeconomics

Harry is saving, Dell is investing.

When a $2 tax is levied on buyers of a good, the price that buyers pay after the tax increases by

Less than $2

Which of the following offers the best example of financial intermediation?

Ms. Y makes a deposit at a commercial bank and the bank uses this money to make an auto loan to Mr. X.

Economic variables whose values are measured in monetary units are called

Nominal variables

If a production function for a certain good is Y =A F (K, H, L, N) has decreasing returns to scale, and all factors of production are essential producing this good, then output can be doubled if (K, H, L, N stand for the quantities of physical capital, human capital, labor, and natural resource) A. all of the inputs double. B. all inputs but labor double. C. labor alone doubles. D. None of the above is correct

None of the above is correct.

Which of the following statements most accurately reflects the Bureau of Labor Statistics' (BLS) calculation of its standard, U-3, the unemployment rate?

People working part time are counted as "employed" by the BLS in its official (or U-3) unemployment rate.

. Consider five individuals with different occupations. Mary provides legal advice wants knives sharpened Clark grows tomatoes wants legal advice Nathan styles hair wants tomatoes Polly brews beer wants knives sharpened Paul sharpens knives wants beer Which of the following pairs of individuals has a double coincidence of wants?

Polly and Paul

Suppose a ten-year bond with a $1,000 face value pays a 2.5% annual coupon (at the end of the year), has 3 years left to maturity, and has a discount rate of 6.5%. Which of the following would give you the current present value - i.e. the price - of the bond?

Present Value = [$25/(1.065)] + [$25/(1.065)2 ] +[$25/(1.065)3 ] +[$1,000/(1.065)3 ]

Which of the following is not a monetary rule?

Quantitative easing

Richard purchases a stock issued by Google, Inc., which uses the funds to buy new machinery for one of its factories. In the language of macroeconomics,

Richard is saving, Google is investing.

Which of the following is true of markets characterized by negative externalities?

Social cost exceeds private cost, and market quantity exceeds the socially optimal quantity

Which of the following events would most likely explain a general increase in interest rates and a decrease in private investment in the loanable funds model, ceteris paribus?

The U.S. federal government budget goes from surplus to deficit

Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy

a central bank

Which of the following does NOT add to U.S. GDP

The federal government sends a Social Security check to your grandmother.

Which of the following is correct?

The larger the percentage of stock in a portfolio, the greater the risk, but the greater the average return

The data on hyperinflation show a clear link between the quantity of money and

The price level.

Other things the same, an increase in velocity means that

Transactions per dollar increase so the price level rises.

Suppose you were told that between 2010 and 2015 the population of the nation state of Songland decreased by 15% in these five years. Using the definition of the "standard of living" discussed in class, it follows that, between 2010 and 2015, Songland experienced _______ in real GDP, _______.

a decrease, but an increase in the standard of living

Ceteris paribus, the primary advantage of a stock or bond mutual fund over individual stocks and bonds, respectively, is that mutual funds:

allow investors with small amounts of money to diversify their investment portfolios.

In a system of 100-percent-reserve banking (required reserve rate equals 100%)

commercial banks do not influence the supply of money.

Suppose the yield on a ten-year U.S. Treasury note was 2.05% on November 7, 2017. Now suppose that the next morning you read the following headline in the Wall Street Journal: "Republican Leadership in Congress Will Not Shut Down Government Over Debt Limit." Further suppose that bond traders interpret the increase in the federal debt ceiling as a decrease in the default risk associated with U.S. Treasury securities. Ceteris paribus, it follows that the yield on the ten-year note will _____; while the coupon payment on the ten-year note will _____.

decrease, remain unchanged

Suppose a federal excise tax, to be collected by buyers, is placed on the cell phones. Ceteris paribus, it follows that the quantity of cell phones exchanged will _______, and the net price received by sellers, i.e. the price they receive after they pay the tax, will _______.

decrease; decrease

Refer back to the previous question. Suppose you purchase this bond, but then, after you purchase it you discover that the default risk on the bond has increased. Ceteris paribus, it follows that the present value (or market price) would _____, and the yield would _____

decrease; increase

An open-market sale

decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Given the progressive nature of the U.S. federal tax system, it follows that _______ is (are) _______ distributed than _______.

disposable income; more equally; gross income

If money is neutral and the money supply rises, which of the following rise?

dollar wages

When a tax is placed on a product, the price paid by buyers

rises, and the price received by sellers falls.

One of the problems associated with the CPI as a measure of inflation is the treatment of _______; this, and other problems with the measure, lead economists to conclude that, ceteris paribus, the CPI systematically _______ inflation.

substitution bias; overstates

The discovery of a large new reserve of crude oil will shift the __ curve for gasoline, leading to a ____ equilibrium price.

supply, lower

Efficiency wages create a labor

surplus and so increase unemployment.

The supply of money increases when

the Fed makes open-market purchases

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase

the GDP deflator but not the CPI