Macro Exams 2 and 3

Say there is an unexpected rise in consumer spending and thus an unexpected fall in private savings by households. According to the income-expenditure model, what will happen as a result of this?

All of the above.

Changing the level of government spending is an example of _____ policy.

fiscal

Unemployment that occurs because it requires workers to spend time, effort, and/or money to find the "right" job is ______ unemployment.

frictional

A country's exports minus its imports during a period are:

net exports.

The supply of loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity supplied of loanable funds.

upward; savers; decreasing

The short-run aggregate supply curve is positively sloped because:

wages are sticky.

Consider an economy that produces only DVDs and DVD players. In 2015, 10 DVDs were sold at $20 each and 5 DVD players were sold at $100 each. In 2016, 15 DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Using 2015 as the base year, real GDP in 2016 is:

$1,300.

Consider the following information about an open economy. Consumer Spending is $400 billion. Private Savings is $150 billion. Exports are $100 billion. Imports are $80 billion. And Net Government Savings (the budget balance) is negative $24 billion. What is Investment Spending?

$106 billion

Say a typical family in The United Kingdom consumes (and only consumes) 130 units of fish and 800 units of chips. In year 1, the price of one unit of fish was $4.60 and the price of one unit of chips was $0.50. In year 2, the price of one unit of fish was $5.20 and the price of one unit of chips was $0.55. What is the cost of the market basket in year 2?

$1116

Boeing buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model at $10 million. The value added by Boeing is equal to:

$3.5 million.

Consider the following information about an open economy. Consumer Spending is $1020 billion. Exports are $100 billion. Imports are $40 billion. Net Government Savings (the budget balance) is negative $120 billion. Government Spending is $300 billion. And GDP is $1600 billion. What is Private Savings?

$400 billion

Suppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses the wheat to make flour and then hamburger buns, which it sells to Hamburger Heaven for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger Heaven uses the beef and buns to make 10,000 hamburgers, which are sold for $5 each. How much do these transactions add to GDP?

$50,000

Say a typical family in The United Kingdom consumes (and only consumes) 130 units of fish and 800 units of chips. In year 1, the price of one unit of fish was $4.60 and the price of one unit of chips was $0.50. In year 2, the price of one unit of fish was $5.20 and the price of one unit of chips was $0.55. What is the cost of the market basket in year 1?

$998

Say a typical family in The United Kingdom consumes (and only consumes) 130 units of fish and 800 units of chips. In year 1, the price of one unit of fish was $4.60 and the price of one unit of chips was $0.50. In year 2, the price of one unit of fish was $5.20 and the price of one unit of chips was $0.55. If year 1 is the base year, what is the consumer price index for year 2?

111.82

Consider this information about the economy of a small island. The population of people age sixteen or older is 9000. 6100 people are employed. Of those 6100 employed, 800 work part-time but want to work full-time, yet cannot find full-time work. 600 people are unemployed. Of those 600 unemployed, 100 have been unemployed for fifteen weeks or longer. Of those 600 unemployed, 300 are unemployed due to job loss or the completion of temporary jobs. There are 1200 marginally attached workers. Of those 1200 marginally attached workers, 900 are discouraged workers. What is the U4 measure of labor underutilization (round to nearest whole percentage point)?

20%

Consider this information about the economy of a small island. The population of people age sixteen or older is 9000. 6100 people are employed. Of those 6100 employed, 800 work part-time but want to work full-time, yet cannot find full-time work. 600 people are unemployed. Of those 600 unemployed, 100 have been unemployed for fifteen weeks or longer. Of those 600 unemployed, 300 are unemployed due to job loss or the completion of temporary jobs. There are 1200 marginally attached workers. Of those 1200 marginally attached workers, 900 are discouraged workers. What is the U5 measure of labor underutilization (round to nearest whole percentage point)?

23%

Consider this information about the economy of a small island. The population of people age sixteen or older is 9000. 6100 people are employed. Of those 6100 employed, 800 work part-time but want to work full-time, yet cannot find full-time work. 600 people are unemployed. Of those 600 unemployed, 100 have been unemployed for fifteen weeks or longer. Of those 600 unemployed, 300 are unemployed due to job loss or the completion of temporary jobs. There are 1200 marginally attached workers. Of those 1200 marginally attached workers, 900 are discouraged workers. What is the U6 measure of labor underutilization (round to nearest whole percentage point)?

33%

Consider this information about the economy of a small island. The population of people age sixteen or older is 9000. 6100 people are employed. Of those 6100 employed, 800 work part-time but want to work full-time, yet cannot find full-time work. 600 people are unemployed. Of those 600 unemployed, 100 have been unemployed for fifteen weeks or longer. Of those 600 unemployed, 300 are unemployed due to job loss or the completion of temporary jobs. There are 1200 marginally attached workers. Of those 1200 marginally attached workers, 900 are discouraged workers. What is the labor force participation rate (round to nearest whole percentage point)?

74%

Say GDP is $850 billion, and the government debt is $680 billion. What is the debt to GDP ratio?

80%

Consider this information about the economy of a small island. The population of people age sixteen or older is 9000. 6100 people are employed. Of those 6100 employed, 800 work part-time but want to work full-time, yet cannot find full-time work. 600 people are unemployed. Of those 600 unemployed, 100 have been unemployed for fifteen weeks or longer. Of those 600 unemployed, 300 are unemployed due to job loss or the completion of temporary jobs. There are 1200 marginally attached workers. Of those 1200 marginally attached workers, 900 are discouraged workers. What is the U3 measure of labor underutilization, also known as the unemployment rate (round to nearest whole percentage point)?

9%

Which of the following transactions is included in the nation's gross domestic product?

A book publisher produces copies of a new book, but some of the books do not sell this year. So the publisher adds the surplus books to inventories.

Which of the following cannot close a recessionary gap?

A decrease in government spending on public schools and universities.

What would help reduce frictional unemployment?

Better job search technology such as online job search websites.

What happens in the market for loanable funds when firms become more pessimistic about perceived business opportunities and anticipate smaller payoffs to investment spending than before?

Demand for loanable funds shifts left.

Say the consumer price index in year 1 is 115 and the consumer price index in year 2 is 125. Then the inflation rate is exactly 10% from year 1 to year 2 as measured by the consumer price index.

False

If the macroeconomy was originally in a long-run equilibrium but then experiences a positive shock to aggregate supply, what will happen?

None of the above.

Periods in which output and employment are falling are:

Recessions

Consider the following statement: "Perfect Ricardian Equivalence makes expansionary fiscal policy completely ineffective because households decrease spending and save more in preparation for higher future taxes." Which of the following is NOT an appropriate rebuttal of that statement?

Ricardian Equivalence tends to not matter as much during a recession, because in a recession caused by a negative demand shock there is typically a reduction in the aggregate price level and a reduction in the interest rate.

What happens in the market for loanable funds when households that lend money become more risk averse?

Supply for loanable funds shifts left.

What happens in the market for loanable funds when households that lend money become more patient?

Supply for loanable funds shifts right.

What happens in the market for loanable funds when lending money becomes less risky?

Supply for loanable funds shifts right.

What happens in the market for loanable funds when net capital inflows into the country increase from an inflow of $20 billion to an inflow of $30 billion.

Supply for loanable funds shifts right.

Say the expectations of households change and they become more pessimistic. Households now anticipate their incomes will decrease in the near future. What will occur to the macroeconomy in the short-run?

The aggregate demand curve will shift left.

Say there is a stock market crash. Assume that this stock market crash was not directly due to a change in the aggregate price level. As a result of the stock market crash, the wealth of households decreases. What will happen to the macroeconomy in the short-run?

The aggregate demand curve will shift left.

Consider an economy heavily dependent on logging, mining, heavy machinery operation and other industries/occupations that have a high risk of bodily harm to workers. Say the government imposes new safety regulations. But instead of making workers safer, the regulations impede workers with unnecessary timewasting procedures and red-tape. As a result, productivity declines. What will happen in the short-run?

The short-run aggregate supply curve will shift left.

What happens in the market for loanable funds when there is a rise in expected inflation by everyone in the economy?

The supply for loanable funds shifts left and the demand for loanable funds shifts right.

The paradox of thrift is an example of what macroeconomic concept?

The whole is greater (or different) than the sum of its parts.

If a country has a trade deficit, we can conclude that it also has:

a positive net capital inflow.

The value of the Taiwan's exports currently exceeds the value of its imports. Taiwan is currently running a what?

Trade Surplus

Which of the following questions is an example of a macroeconomic question?

What will happen to US exports as the dollar becomes less expensive in terms of other currencies?

Gross Domestic Product is a measure of all of the following EXCEPT:

a measure of total wealth in the economy

The US recessions of 1973-1975 and the "double-dip" recession of 1979-1982 were caused in part by:

a negative aggregate supply shock caused by skyrocketing crude oil prices.

Investment spending in macroeconomics refers to:

adding to productive capital and changes to inventory.

When the existing stock of productive capital is relatively too large and there is less of a need for more, then in the short-run:

aggregate demand will shift left.

The Long-Run Aggregate Supply curve is a vertical line because:

all production costs, including nominal wages, are fully flexible in the long-run.

Say, as a governmental rule, taxes are assessed as a percent of income and that percent does not change over time. If incomes rise during an inflationary gap you will see an automatic increase in tax revenue. This is an example of:

an automatic stabilizer.

Before the Great Depression, the conventional wisdom among economists and policy makers was that the macroeconomy is largely self-regulating. The effect of the Great Depression on that conventional wisdom was to:

cast doubt on the conventional wisdom and bring about the Keynesian economics viewpoint.

Changes in real GDP per capita over time are used to measure all of the following EXCEPT:

changes in the rate of inflation.

Due to a recession, Fred loses his job as a grocery store assistant manager. His boss promises to rehire him later when business picks up again. Fred is:

cyclically unemployed.

Fiscal policy due to deliberate actions by policy makers rather than automatic adjustments is called _______ fiscal policy.

discretionary

A change in taxes or a change in government transfers indirectly affects consumer spending through its effect on:

disposable income.

The Aggregate Demand curve slopes:

downward in part because as the aggregate price level falls, the ability of firms to borrow cheaply increases, and this induces changes in investment spending.

The demand curve for loanable funds slopes:

downward, because quantity demand is lower when the price to borrow money is higher.

Deflation:

encourages people to hold cash rather than spend.

The GDP deflator is:

equal to 100 in the base year.

If real GDP stays constant while nominal GDP falls, then prices on average have:

fallen.

Medicaid, Medicare, Social Security, and unemployment insurance checks are examples of:

government transfer payments.

Nominal GDP:

has not been adjusted for changes in prices over time.

Discouraged workers:

have given up looking for a job.

Unexpected inflation does which of the following:

increase the risks to borrowing and lending.

All else equal, when the interest rate _______, more households are willing to forgo current consumption and give out loans.

increases

Changing interest rates is an example of _____ policy.

monetary

An increase in the purchasing power of household wealth directly due to a decrease in the aggregate price level will cause a:

movement along the aggregate demand curve corresponding to a rise in aggregate output demanded.

In an open economy, total investment spending equals:

national savings plus net capital inflows.

Income divided by the price level is _____ income.

real

To close an inflationary gap with fiscal policy, the government could:

reduce budget allocations to interstate highway maintenance.

The work by Milton Friedman and other modern macroeconomists altered the consensus that had developed in the aftermath of the Great Depression on how the economy should be managed. As a result, modern macroeconomists recommend that policymakers:

reduce the magnitude of both downturns and upturns in the business cycle.

Say the aggregate demand increased. In the long run, after the economy self-corrects, the aggregate price level will have _____ and potential output will have _____.

risen; remained stable

In the long run, the economy is:

self-correcting, as wages and production costs that are sticky or fixed in the short run become fully flexible in the long run, and thus move the economy to full employment.

The time period in the US of notable reduction in the business cycle fluctuations and volatility beginning in the mid 1980's was called:

the Great Moderation.

Of the following items, which would NOT be included in GDP?

the dollar value of a repair job done by your cousin on her own car

A firm will be likely to borrow to fund an investment project if:

the rate of return on the project is at least as high as the interest rate on the loan.