MACRO FINAL 2021S
In the economy of Nocoin bank deposits are $500 billion. Bank reserves are $60 billion, of which two thirds are deposits with the central bank. Households and firms hold $40 billion in bank notes. There are no coins. Calculate the monetary base and the quantity of money. Calculate the banks' desired reserve ratio and the currency drain ratio (as percentages). The monetary base is ______ billion. The quantity of money is _____billion. The banks' desired reserve ratio is _____ percent. The currency drain ratio is _____ percent.
$100 $540 12 8
In an economy, there is $100 million in currency held outside banks, $75 million in traveler's checks, $200 million in currency held inside the banks, $350 million in checking deposits, $500 million in savings deposits, $1,000 million in time deposits, and $1,000 million in money market mutual funds and other deposits. Calculate M1 and M2. The value of M1 is ______ and the value of M2 is ______.
$525 million; $3,025 million
Suppose that potential GDP and the velocity of circulation are constant. What is the change in the price level in the long run if the quantity of money increases by 1 percent a year? If the quantity of money increases by 1 percent a year, in the long run the change in the price level is ________ percent a year.
1
In April 2014, the money price of a carton of milk was $2.01 and the money price of a gallon of gasoline was $3.63. Calculate the relative price of a gallon of gasoline in terms of milk. The relative price of a gallon of gasoline in terms of milk is _______.
1.81 cartons of milk
On January 1, 2017, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2017, Sophie's bought 3 new beds at a total cost of $12,000. At the end of the year, the market value of all of Sophie's beds was $27,000. Calculate Sophie's gross investment and depreciation during 2017. Sophie's gross investment during 2017 was _______ Sophie's depreciation during 2017 was ________
12000 5000
Daisy loans Alfred $10,000 and a year later, Alfred pays Daisy $10,400. If the inflation rate during that year is 1.5 percent, what is the real interest rate that Alfred is paying to Daisy? The real interest rate that Alfred is paying to Daisy is _______.
2.5 percent a year
Cindy takes a summer job painting houses. During the summer, she earns an after-tax income of $4,000 and she spends $1,000 on living expenses. What was Cindy's saving during the summer? Cindy's saving during the summer was ________
3000
What is the present value of $5,000, four years in the future if the interest rate is 4 percent? The present value of $5,000, four years in the future if the interest rate is 4 percent is $____________
4274.02
The table gives some items from the national income and product accounts. Calculate the government sector balance, the private sector balance, and net exports The government sector balance is ______ billion dollars. The private sector balance is ____ billion dollars. Net exports is ______billion dollars.
450; 0; 450 See Picture for Table
What is the present value of $500, three years in the future if the interest rate is 3 percent? The present value of $500, three years in the future if the interest rate is 3 percent is __________
457.57
Explain why a relative price is an opportunity cost. The money price of a box of ramen noodles is $0.50 and the money price of a can of shave gel is $2.50. The opportunity cost of a can of shave gel is _______. The relative price of a can of shave gel is an opportunity cost because ______.
5 boxes of ramen noodles, which is the relative price of a can of shave gel the relative price tells us how many boxes of ramen noodles we must give up to get a can of shave gel
The table shows the only international transactions that the citizens of Nickleodeon, whose currency is the dime, conducted in 2017. What is Nickleodeon's current account balance, capital and financial account balance, and official settlements account balance? >>> Record a negative balance with a minus sign. Do not record a positive balance with a plus sign. Nickleodeon's current account balance is ____ billion dimes. Nickleodeon's capital and financial account balance is _____ billion dimes. Nickleodeon's official settlements account balance is ____ billion dimes.
50; -140; 90 See Picture for Table
Karrie is a golf pro, and after she paid taxes, her income from golf and interest from financial assets were $1,500,000 in 2016. At the beginning of 2016, she owned $700,000 worth of financial assets. At the end of 2016, Karrie's financial assets were worth $1,400,000. How much did Karrie save during 2016? How much did she spend on consumption goods and services? During 2016 Karrie saved $____________ During 2016 Karrie spent $_________ on consumption goods and services.
700000 800000
When the Fed buys securities from a bank, a sequence of events begins. The events are listed below. Number each event in the order in which it occurs. Unplanned reserves decrease. Some of the new money remains on deposit. The quantity of money increases. New money is used to make payments. Banks lend unplanned reserves. Desired reserves increase because deposits have increased. Banks have unplanned reserves.
8 Unplanned reserves decrease. 5 Some of the new money remains on deposit. 3 The quantity of money increases. 4 New money is used to make payments. 2 Banks lend unplanned reserves. 7 Desired reserves increase because deposits have increased. 1 Banks have unplanned reserves. 6 Some of the new money is a currency drain.
Choose the correct statement. A. A bank's reserves are notes and coins in the bank's vault or in a deposit account at the Federal Reserve. B. A benefit of a money market mutual fund is that shareholders can write checks on their accounts with no restrictions. C. Money market mutual funds represent 13 percent of M1. D. In 2017 about 700 commercial banks operated in the United States.
A bank's reserves are notes and coins in the bank's vault or in a deposit account at the Federal Reserve.
Choose the statement about flexible exchange rates that is correct.
A flexible exchange rate is influenced by central bank actions.
Choose the correct statement. A. U-3 includes discouraged workers. B. The unemployment rate includes all underutilized labor. C. A marginally attached worker is a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past. D. U-2 is the unemployment rate of those unemployed for 15 weeks or more.
A marginally attached worker is a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past.
Choose the correct statement. A. The return to full employment in an expansion phase of the business cycle is economic growth. B. Economic growth is illustrated as a movement along the PPF. Your answer is not correct. C. Real GDP grows at a smoother rate than potential GDP grows. D. A return to full employment in a business cycle expansion is shown as a movement from inside the PPF to a point on the PPF.
A return to full employment in a business cycle expansion is shown as a movement from inside the PPF to a point on the PPF.
What problems arise from the CPI bias? Choose the correct statement.
A wage contract linked to the CPI gives the workers more real income than the firm intended
Will and Betsy grow strawberries and raspberries. Will has a comparative advantage in producing strawberries if _______. If Will also has an absolute advantage in growing strawberries and raspberries, he will _______.
Betsy's opportunity cost of producing strawberries is greater than Will's opportunity cost of producing strawberries. be more productive than Betsy
Choose the correct statement. A. Currency is money and credit cards are money because they are means of payment, but deposits are not money. B. A check is money because while it is in circulation the quantity of money increases by the amount of the check. C. A credit card is money because it allows you to take a loan at the instant you buy something. D. Deposits are money, checks are not money, and credit cards are not money.
Deposits are money, checks are not money, and credit cards are not money.
Choose the correct statement. A. If there is a shortage of labor, the real wage rate falls to eliminate the shortage. B. The nominal wage influences the quantity of labor supplied because what matters to households is not the number of dollars they earn but what they can buy with those dollars. C. Each additional hour of labor increases real GDP by successively smaller amounts. D. The quantity of labor demanded in the economy during a given period depends on the quantity of labor supplied.
Each additional hour of labor increases real GDP by successively smaller amounts.
The Taylor rule sets the federal funds rate (FFR) using the following formula, where INF is the inflation rate and GAP is the output gap.
FFR = 2 + INF + 0.5(INF−2) + 0.5GAP
The liabilities of the Fed are ______, and these liabilities along with ______ make up the monetary base.
Federal Reserve notes held by households and businesses and reserves of depository institutions; coins issued by the Treasury
Explain the flows of funds that finance business investment. Choose the correct statement. A. The funds that financial business investment flow through factor markets from households and through export markets from the rest of the world to U.S. firms. B. The funds that finance business investment come from the Federal Reserve and the amount is determined by the decisions of the Fed's Board of Governors. C. Business investment throughout the world is principally funded by the activity of publicly traded firms on U.S. stock markets and in a small part by bank loans. Governments have no influence on business investment. D. Funds from household saving, the government budget surplus, and the rest of the world flow through financial markets and institutions to firms who borrow the funds for investment.
Funds from household saving, the government budget surplus, and the rest of the world flow through financial markets and institutions to firms who borrow the funds for investment.
Choose the statement that is incorrect.
If the inflation rate is below or expected to move below the bottom of the comfort zone, the Fed considers raising the interest rate.
What makes an exchange rate hard to predict? Choose the correct sentence.
Influences of expectations and the constant arrival of news about the influences on supply and demand, make day-to-day and week-to-week changes in the exchange rate difficult to predict.
Complete the sentence. If in the long run, the U.S. dollar appreciates against the Japanese yen, then ______.
Japan has created money at a faster pace than has the United States, and the price level in Japan has risen more rapidly than the U.S. price level
In ______ cycle theory, animal spirits are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
Keynesian; monetarist
Choose the correct statement. A. An increase in the quantity of labor and a corresponding decrease in leisure hours shifts the production function upward. B. An increase in the quantity of labor and a corresponding decrease in leisure hours will have no effect on real GDP. C. Labor hours are not all equally productive. This is the correct answer. D. The aggregate production function is the relationship that tells us how real GDP changes as the real wage rate changes, when all other influences on production remain the same.
Labor hours are not all equally productive.
Two economists are debating the cause of a high unemployment rate. One economist argues that there is not enough government spending. The other says high unemployment is a structural problem—people who can't move to take new jobs because they are tied down to burdensome mortgages or firms that can't find workers with the skills they need to fill job openings. Which business cycle theory would say that the first economist is correct and why? ______ business cycle theory, because it says unemployment is caused by too little aggregate ______ . Which business cycle theory would say that the second economist is correct and why? ______ business cycle theory, because it says unemployment is ______ .
Mainstream; demand Real; structural, caused by technological shocks that decrease aggregate supply
Choose the correct statement about an increase in the population. A. Potential GDP per hour of labor decreases. B. The production function shifts upward. C. The real wage rate rises. D. Potential GDP decreases.
Potential GDP per hour of labor decreases.
Choose the correct statement about growth in labor productivity. A. The real wage rate falls and the equilibrium quantity of labor increases. B. The demand for labor increases, the production function does not change, but a movement occurs along the production function. C. Potential GDP per hour of labor increases. D. Potential GDP remains unchanged.
Potential GDP per hour of labor increases.
Distinguish between production efficiency and allocative efficiency. _______ efficiency occurs when we produce goods and services at the lowest possible cost. _______ efficiency occurs when goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit. All points on the PPF are points of ______ efficiency. When we produce at the point on the PPF that we prefer above all other points we achieve ______ efficiency.
Production; Allocative production; allocative
Describe the gaps between real GDP per person in the United States and in other countries. For which countries is the gap narrowing? For which is it widening? For which is it the same? Since 1980, the gap between the United States and _______.
Russia and between the United States and Nigeria narrowed, the gap between the United States and Mexico widened, and the gap between the United States and the Europe Big 4 remained relatively constant
Draw a demand for loanable funds curve and a supply of loanable funds curve. Label them DLF0 and SLF0. Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. Now the government imposes a tax on capital income. Draw a curve that shows the effect of this tax. Label it. Draw a point at the new equilibrium interest rate. Label it 2. Draw a point to show the new after-tax interest rate. Label it 3.
See Picture
Draw a graph to illustrate the effect of a decrease in the demand for loanable funds and a smaller decrease in the supply of loanable funds on the real interest rate and the equilibrium quantity of loanable funds. Draw a demand for loanable funds curve. Label it DLF0. Draw a supply of loanable funds curve. Label it SLF0. Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. Draw a curve that shows a decrease in the demand for loanable funds. Label it DLF1. Draw a curve that shows a smaller decrease in the supply of loanable funds. Label it SLF1. Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2.
See Picture
Explain the influence of the following events on the quantity of real GDP supplied and aggregate supply in India. When fuel prices rise _______. When the price level in India increases _______. The graph gives the long-run aggregate supply curve and the short-run aggregate supply curve for India. Suppose U.S. firms move their call handling, IT, and data functions to India. The full-employment price level does not change. If long-run aggregate supply changes, draw the new long-run aggregate supply curve and label it. If short-run aggregate supply changes, draw the new short-run aggregate supply curve and label it. Draw a point at the full-employment price level at potential GDP following this event.
See Picture
The graph shows an aggregate demand curve. Draw a curve that shows the effect on aggregate demand of an increase in expected future income. Label it.
See Picture
The graph shows the demand curve for reserves in the market for bank reserves. The federal funds target rate is 4 percent. Draw the supply curve of reserves to achieve the federal funds target rate. Label it. Draw a point at the equilibrium in the market for bank reserves.
See Picture
The graph shows the loanable funds market when there is neither a government budget surplus nor a government budget deficit. Draw a point at the equilibrium quantity of loanable funds and the equilibrium real interest rate. Label it 1. Now suppose that the government has a budget deficit of $1 trillion. Draw a curve that shows the effect of this deficit in the loanable funds market. Label it. Draw a point at the new equilibrium real interest rate and quantity of saving. Label it 2. Draw a point to show investment when the government budget deficit is $1 trillion. Label it 3.
See Picture
The graph shows the loanable funds market when there is neither a government budget surplus nor a government budget deficit. Draw a point at the equilibrium quantity of loanable funds and the equilibrium real interest rate. Label it 1. Now suppose that the government has a budget surplus of $1 trillion. Draw a curve that shows the effect of this surplus in the loanable funds market. Label it. Draw a point at the new equilibrium real interest rate and quantity of investment. Label it 2. Draw a point to show private saving when the government budget surplus is $1 trillion. Label it 3.
See Picture
The graph shows the market for gum. A fire destroys some factories that produce gum and the quantity of gum supplied decreases by 40 million packs a week at each price. Draw a curve to show the effect of this event. Label it 1. Draw a point to show the new equilibrium price and equilibrium quantity. Label it E1. At the same time the fire occurs, there is an increase in the teenage population, which increases the quantity of gum demanded by 40 million packs a week at each price. Draw a curve to show the effect of this event Label it 2. Draw a point to show the new equilibrium price and equilibrium quantity. Label it E2.
See Picture
The graph shows the outlays and receipts curves for an economy. Actual real GDP is $13 trillion. Draw a vertical line that shows a value of potential GDP such that the economy has a cyclical deficit. Label the line.
See Picture
The graph shows the outlays and receipts curves for an economy. Draw a vertical line at a value of potential GDP at which a structural surplus exists. Label it 1. Draw a vertical line at a value of potential GDP at which a structural deficit exists. Label it 2.
See Picture
The table shows the receipts and the outlays of a nation at each level of real GDP. What is the budget balance when real GDP is $5 trillion?
See Picture
Draw a demand curve for football tickets labeled D, and a supply curve of football tickets labeled S. Use any prices and quantities you wish but make your demand and supply curves obey the laws of demand and supply. Draw a point to indicate the equilibrium price and equilibrium quantity. The equilibrium quantity _______.
See Picture and equilibrium price are determined at the intersection of the supply curve and the demand curve
The graph shows a business cycle. Draw points on the curve that show when the economy is at: 1) full employment. Label it 1. 2) a below full-employment equilibrium. Label it 2. 3) an above full-employment equilibrium. Label it 3. In the graph, the vertical distance between the horizontal Potential GDP line and point 2 is _____ gap. At point 2, the intersection of the AD and SAS curves is to the _____ of the LAS curve. The vertical distance between the horizontal Potential GDP line and point 3 is _____ gap. At point 3, the intersection of the AD and SAS curves is to the _____ of the LAS curve.
See Picture a recessionary; left; an inflationary; right
The figure shows the demand for money curve in Epsilon. The quantity of money is $3.1 trillion. Draw the supply of money curve. Label it. Draw a point at the equilibrium in the money market. If the interest rate is 5 percent, people will ______.
See Picture buy bonds, bid up their price, and the interest rate will fall
The graph shows demand for loanable funds curve. Suppose the real interest rate rises. Draw either an arrow along the demand curve showing the direction of change or a new demand curve. When the real interest rate rises, the ______ because the ______ is the opportunity cost of loanable funds.
See Picture quantity of loanable funds demanded decreases; real interest rate
Draw a demand for dollars curve. Label it D. Draw a supply of dollars curve. Label it S. Draw a point at the equilibrium quantity and equilibrium exchange rate. Draw an arrow between the D and S curves that indicates a price at which there is a surplus of dollars. Label it. When there is a surplus of dollars in the foreign exchange market, ______.
See Picture the forces of supply and demand pull the foreign exchange market into equilibrium
Draw a short-run aggregate supply curve. Label it. As we move up along the short-run aggregate supply curve, ______.
See Picture the money wage rate, the prices of other resources, and potential GDP remain constant.
Draw an aggregate demand curve. Label it AD. Draw a short-run aggregate supply curve. Label it SAS. Draw a point at the short-run macroeconomic equilibrium. Label it 1. Draw a point on the SAS curve at which inventories pile up. Label it 2. When unwanted inventories pile up, _____. Prices _____.
See Picture the quantity of real GDP supplied is greater than the quantity of real GDP demanded; fall
A new technology is developed that increases firms' expected profits. Draw a curve that shows the effect of this event. Draw a point at the new equilibrium quantity of loanable funds and the new equilibrium real interest rate. When a shortage or a surplus arises in the loanable funds market _______.
See Picture the real interest rate is pulled to the new equilibrium level
Over what range of prices does a surplus occur? What happens to the price when there is a surplus? The graph shows the demand curve and the supply curve in the market for leather jackets. Draw a horizontal line at a price at which there is a surplus of leather jackets. Label it Surplus. When a surplus arises, the price ______ to its equilibrium, which _______.
See Picture falls; increases the quantity demanded and decreases the quantity supplied
The graph shows the demand curve for U.S. dollars. The exchange rate is currently 100 yen per dollar. Over time, the exchange rate rises to 120 yen per dollar. Show the effect in the graph. Draw either a new demand curve or an arrow along the curve showing the direction of change. The law of demand for foreign exchange states that other things remaining the same, the ______ the exchange rate, the smaller is the ______ in the foreign exchange market.
See Picture higher; quantity of U.S. dollars demanded
A fish farm raises salmon and trout. The marginal cost of producing each of these products increases as more is produced. Draw the firm's PPF. Label it PPF1. The fish farm adopts a new technology that allows it to use fewer resources to feed the trout. Draw a PPF that shows the impact of the new technology. Label it PPF2. With this new technology, the opportunity cost of producing a ton of salmon ______ and the fish farm is ______ efficient.
See Picture increases; equally
The figure shows the supply curve of microwaves. If the price of a microwave falls from $80 to $20, while all other influences on selling plans are unchanged, the quantity of microwaves supplied _______ .
See Picture decreases from 16 million to 4 million
The graph shows the private demand for loanable funds curve and the supply of loanable funds curve. Draw a curve that shows the effect on the loanable funds market when the government has a budget deficit. Label it C1. Draw a curve that shows the Ricardo-Barro effect on the loanable funds market. Label it C2. Draw a point at the new real interest rate and quantity of loanable funds. The Ricardo-Barro effect _______ crowding out.
See Picture Eliminates
Draw a curve that shows the relationship between the tax rate and the amount of tax revenue collected. The relationship between the tax rate and the amount of tax revenue collected is called the ______ curve. This curve shows that ______.
See Picture Laffer; tax cuts can increase tax revenue
The graph shows an economy's long-run aggregate supply curve. Draw an aggregate demand curve and a short-run aggregate supply curve such that when the economy is in long-run equilibrium, the price level is 110. Label the curves. Draw a point at the long-run macroeconomic equilibrium. In the long-run macroeconomic equilibrium, ______.
See Picture potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level
The table provides some data on real GDP and the population of Iberia in 2015 and 2016. If the growth rates of 2016 are maintained in future years, when will real GDP per person in Iberia double? If the growth rates of 2016 are maintained in future years, real GDP per person in Iberia will ______.
See Picture for Chart double by 2024
The table shows items of income and expenditure in an economy. Calculate GDP. GDP in this economy equals $______ billion. There is sufficient information given in the table to calculate GDP using the ________approach. What items would you need in addition to the items given in the table to complete your calculation of GDP using the income approach?
See Picture for Table 1106 expenditure indirect taxes less subsidies
The table provides estimates of an economy's wealth and saving in three years. What are the years in which the change in wealth exceeds saving? What are the years in which saving exceeds the change in wealth? The change in wealth exceeds saving in ______. Saving exceeds the change in wealth in ______.
See Picture for Table 2014 and 2015; none of the years in the table
The table provides some data on real GDP and the population of Europa in 2015 and 2016. What was the growth rate of real GDP in Europa in 2016? What was the growth rate of real GDP per person in Europa in 2016? The growth rate of real GDP in Europa in 2016 is _____ percent. The growth rate of real GDP per person in Europa in 2016 was ______ percent.
See Picture for Table 5 3
The table sets out the data for an economy when the government's budget is balanced. If the government's budget becomes a deficit of $1.0 trillion, what are the real interest rate and investment? Does crowding out occur? If the government's budget becomes a deficit of $1.0 trillion, the real interest rate is ____ percent a year and the quantity of investment is $_______trillion. There _____ crowding out in this situation because _____.
See Picture for chart is; the deficit increases the real interest rate, which decreases the quantity of loanable funds demanded
Choose the statements concerning neoclassical growth theory that are true. 1. The rate of technological change influences the economic growth rate but economic growth does not influence the pace of technological change. 2. Neoclassical growth theory states that growth in real GDP per person can persist indefinitely. 3. Neoclassical growth theory implies that growth rates and income levels per person around the globe will diverge. 4. Economic growth will stop if technology stops advancing.
Statements 1 and 4 are correct
Choose the statement that is incorrect. A. To gauge the state of output and employment relative to full employment, the Fed studies several indicators including the labor force participation rate, the unemployment rate, and regional information gathered by the regional Federal Reserve Banks. B. The Fed regards stable prices as the primary goal of monetary policy. C. Ben Bernanke, former Chairman of the Fed suggests that a core inflation rate of between 1 and 2 percent a year is the equivalent of price stability. D. The Fed tries to maximize the output gap, especially when that gap is positive.
The Fed tries to maximize the output gap, especially when that gap is positive.
Choose the correct statement. A. The 1940s were and remain the longest and worst period of high unemployment in history. B. In 1933, 40 percent of the labor force was unemployed. C. President Roosevelt's "New Deal" minimized the role of government in economic life. D. The Great Depression lasted until 1941, when the United States entered World War II.
The Great Depression lasted until 1941, when the United States entered World War II.
Choose the correct statement. A. The nominal interest rate is approximately equal to the real interest rate minus the inflation rate. B. The nominal interest rate is the opportunity cost of loanable funds. C. The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money. Your answer is correct. D. The real interest rate is the number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent.
The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money.
Choose the statement that is incorrect. A. Bank reserves are costly to hold because they can be loaned in the federal funds market and earn the federal funds rate. B. The higher the federal funds rate, the smaller is the quantity of reserves demanded. C. The Fed's open market operations determine the demand for reserves. Your answer is correct. D. Banks hold reserves to meet the required reserve ratio and so that they can make payments.
The Fed's open market operations determine the demand for reserves.
Choose the statement that is incorrect.
The demand-side effects of a tax cut are likely to be larger than an equivalent increase in government expenditure.
Choose the correct statement. A. The sum of factor incomes is called net domestic income at market prices. B. Total expenditure is a gross number because it includes gross investment. C. An indirect tax is a tax on income. D. To get from factor cost to market price, we add subsidies and subtract indirect taxes
Total expenditure is a gross number because it includes gross investment.
Which of the following news headlines does not illustrate the potential for conflict between self-interest and the social interest?
Toyota offer retirement incentives to 2,000 U.S. employees
Draw the long-run aggregate supply curve when potential GDP is $18.5 trillion. Label it. As we move up along the long-run aggregate supply curve, ______.
Vertical from 18.5 Real GDP the real wage rate remains constant
Choose the correct statement about the U.S. short-run Phillips curve.
We can interpret U.S. inflation and unemployment data in terms of a shifting short-run Phillips curve, which sometimes shifts upward and sometimes shifts downward.
Choose the correct statement. A. Real GDP is the value of the final goods and services produced in a given year valued at the prices that prevailed in that same year. B. Real GDP is less than nominal GDP in every year. C. We measure the change in production by comparing the value of real GDP in two different years. D. Because GDP in 2017 is greater than GDP in 2016, it must be the case that we produced more goods and services in 2017 than we produced in 2016.
We measure the change in production by comparing the value of real GDP in two different years.
Choose the statement about a crawling peg that is correct.
When China abandoned its fixed exchange rate, it replaced it with a crawling peg.
What is a mortgage? A mortgage is _______.
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments (repayments and interest)
The main events that can put a bank under stress include all of the following except ______.
a rise in the federal funds rate
When is an economy at full employment? An economy is at full employment when ______.
all unemployment is frictional and structural
Complete the sentences. In the United States, the CPI basket consists of items that ______ . ______ has the greatest weight in the CPI basket.
an average urban household buys; Housing
Give some examples of fiscal policy that increase aggregate demand. Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
Complete the following sentence. Money is ______.
any commodity or token that is generally acceptable as a means of payment
If the U.S. exchange rate changes from $1.20 Canadian to $1.25 Canadian, then the U.S. dollar has _______ and the Canadian dollar has _______.
appreciated; depreciated
The price of food increased during the past year. a. Explain why the law of demand applies to food just as it does to other goods and services. b. Explain how the substitution effect influences food purchases when the price of food rises and other things remain the same. c. Explain how the income effect influences food purchases and provide some examples of the income effect. The law of demand applies to food because when the price of food rises, there is ______. The substitution effect influences food purchases because when the price of a certain food rises, other things remaining the same, ______. Consumers ______. The income effect influences food purchases because when the price of a certain food rises, other things remaining the same, ______. Consumers ______.
both a substitution effect and an income effect its relative price rises; purchase more of a different food that is less expensive the price rises relative to income; cannot afford to buy all the things they previously bought, so they normally buy less of the food that has experienced the price rise
Complete the sentences. China operates a crawling peg by ______. China fixes its exchange rate ______.
buying and selling U.S. dollar reserves as a way of achieving a low inflation rate
What influences work hours growth? Work hours growth is influenced by _______.
changes in average hours per worker
In real business cycle theory, all of the following events can be sources of fluctuation in productivity except _______.
changes in the growth rate of money
Operators of private dog parks in your city decide to eliminate their fees and allow dog owners to exercise their dogs in the parks at no charge. This statement means that the incentive to exercise dogs at the dog park ______. The operators' decision is a _______ decision.
changes; microeconomic
To make comparisons of real GDP between two countries we must ______.
convert the real GDP of one country into the same currency units as the real GDP of the other country, and use the same prices to value the goods and services in the countries being compared
Depository institutions provide four benefits, which are ______. A. pooling risk, keeping inflation low and steady, lowering the cost of borrowing, and lowering the cost of monitoring borrowers B. minimizing interest rates on purchases of large ticket items, centralizing all household monetary needs in one location, introducing new technology into banking, and paying interest on investment funds C. creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk Your answer is correct. D. creating liquidity, lowering the cost of borrowing, paying interest on investment funds, and introducing new technology into banking
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk
What are the transactions that the balance of payments accounts record? The ______ account records receipts from exports of goods and services sold abroad, payments for imports of goods and services from abroad, and ______. The ______ account records ______ U.S. investment abroad. The official settlements account records the change in U.S. official reserves, which are the government's holdings of ______. If U.S. official reserves decrease, the official settlements account balance is ______.
current; net interest income paid abroad and net transfers capital and financial; foreign investment in the United States minus foreign currency; positive
The higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak is ______ unemployment.
cyclical
Dairies make low-fat milk from full-cream milk, and in the process they produce cream, which is made into ice cream. Explain the effect of the following events on the supply of low-fat milk. If the wage rate of dairy workers rises, the supply of low-fat milk _______. If the price of cream rises, the supply of low-fat milk _______. If the price of low-fat milk rises, the supply of low-fat milk _______.
decreases because the cost of producing low-fat milk increases increases because cream and low-fat milk are complements in production does not change because the relationship between price and quantity supplied does not change
Which of the following are included in the income approach to calculating GDP?
depreciation; compensation of employees;
The ratio of reserves to deposits that a bank plans to hold is its ______. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has ______.
desired reserve ratio; unplanned reserves
Complete the sentence. In new growth theory ______.
discoveries result from choices
Real GDP ______.
does not include a measure of household production or underground economic activity
Use the Rule of 70 to calculate the growth rate that leads to a doubling of real GDP per person in 20 years. The Rule of 70 states that the number of years it takes for the level of any variable to ______ is approximately ______. If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ percent a year.
double; 70 divided by the annual percentage growth rate of the variable Your answer is correct. 3.5
What does interest rate parity mean? Interest rate parity means ______.
equal rates of return
What is purchasing power parity and what happens when this condition doesn't hold? Purchasing power parity is _______. Suppose that purchasing power parity does not hold. If all (or most) prices have increased in the United States and not increased in Japan, then people will generally expect that the foreign exchange value of the dollar will ______. The demand for dollars ______.
equal value of money fall; decreases and the supply of dollars increases
What is U.S. gross domestic product? U.S. gross domestic product is the market value of all the ______ produced ______ in a given time period.
final goods and services; within the United States
Prior to the Great Depression, the purpose of the federal budget was to ______.
finance federal government programs and activities
Describe the trends and fluctuations in the U.S. employment-to-population ratio and the labor force participation rate from 1980 to 2017. The employment-to-population ratio _______. The labor-force participation rate _______.
followed an upward trend before 2000 and then followed a downward trend shows a steep downward decrease in 2008 and 2009
The market in which the currency of one country is exchanged for the currency of another country is the ______. The price at which one currency exchanges for another currency is the ______.
foreign exchange market; exchange rate
A depository institution takes deposits from ______ and earns most of its income by _______. The deposits of the following three types of depository institutions make up the nation's money: ______.
households and firms; making loans and buying securities that earn a higher interest rate than that paid to depositors commercial banks, thrift institutions, and money market mutual funds
The quantity of investment and borrowing that firms plan to undertake depends on ______.
how productive capital is and what it costs
Assume that the preconditions for labor productivity growth are in place. What influences the pace of labor productivity growth? The pace of labor productivity growth is influenced in part by _______.
human capital growth
Suppose the Fed buys $50 million of government securities from the Bank of America. Complete the sentences. The Fed's total assets ______ and its total liabilities ______. The Bank of America's total assets ______ and its total liabilities ______.
increase by $50 million; increase by $50 million do not change; do not change
An increase in expected future profits _______.
increases aggregate demand today
An increase in expected future income _______. An increase in the expected future inflation rate _______.
increases aggregate demand today; increases aggregate demand today
How does a government budget surplus or deficit influence the loanable funds market? A government budget surplus _______ loanable funds. A government budget surplus _______ the real interest rate, decreases ______. A government budget deficit _______ loanable funds. A government budget deficit _______ the real interest rate, increases ______.
increases the supply of lowers; private saving, and increases investment increases the demand for raises; private saving, and decreases investment
An increase in U.S. demand for imports ______ the supply of U.S. dollars. A rise in the U.S. interest rate differential ______ the supply of U.S. dollars.
increases; decreases
A fall in the expected future exchange rate ______ the supply of U.S. dollars. A decrease in the world demand for U.S. exports ______ the supply of U.S. dollars.
increases; does not change
Describe the gap between real GDP per person in the United States and real GDP per person in Japan between 1980 and 2016. Between 1980 and 2016, the gap between real GDP per person in the United States and real GDP per person in Japan ______.
initially narrowed and then widened as Japan's economy stagnated
What is a fixed exchange rate and how is its value fixed? A fixed exchange rate is one that _______. A fixed exchange rate is achieved _______.
is set by the government or the central bank; by central bank intervention in the foreign exchange market
The cyclical surplus or deficit ______.
is the actual surplus or deficit minus the structural surplus or deficit
The structural surplus or deficit ______.
is the budget balance that would occur if the economy were at full employment
The core inflation rate _______.
is the rate of increase in the core PCE deflator, which is the PCE deflator excluding food and fuel Your answer is correct.
The natural unemployment rate _______.
is the unemployment rate when there is no cyclical unemployment
How do the earnings of economics majors compare with other majors? Economics majors earn _______.
less than chemical engineering majors and applied mathematics majors but more than most other majors
Demand and supply in the market for _______ determine the long-term real interest rate. In the short run, a change in the _______ changes the equilibrium real interest rate.
loanable funds; federal funds rate
Suppose the Fed increases the quantity of money. Complete the sentences. In the long run, supply and demand in the ______ market determines the real interest rate. The ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.
loanable funds; price level
The quantity theory of money is that in the _______, an increase in the quantity of money brings an equal percentage increase in the _______.
long run; increase in the price level
Why is an unexpected burst of inflation a problem? An unexpected burst of inflation _______.
makes workers worse off and makes employers better off
Money serves as a ______.
medium of exchange, which means that it is generally accepted in exchange for goods and services
An increase in the demand for computers and an increase in the supply of computers occur together. What is the effect on the price and quantity of computers? An increase in the demand for computers together with an increase in the supply of computers ______ create a surplus or a shortage of computers at the original price. The equilibrium price of computers ______. The equilibrium quantity of computers _______.
might; might fall, rise, or not change increases
Economics is used as a policy tool when economists _______.
model different economic proposals proposed by government
A country that is borrowing more from the rest of the world than it is lending to the rest of the world is a ______, and a country that during its entire history has borrowed more from the rest of the world than it has lent to it is a ______. Currently, the United States is a _______.
net borrower; debtor nation debtor nation and a net borrower
Why does the aggregate demand curve slope downward? The aggregate demand curve slopes downward because _______.
of the wealth effect and the substitution effect
The private sector balance and the government sector balance tend to move in ______. Net exports respond ______.
opposite directions; to the sum of the government sector and private sector balances
China was the largest economy for centuries because everyone had the same type of economy—subsistence—and so the country with the most people would be economically biggest. Then the Industrial Revolution sent the West on a more prosperous path. Now the world is returning to a common economy, this time technology- and information-based, so once again population triumphs. Why was China the world's largest economy until 1890? Why did the United States surpass China in 1890 to become the world's largest economy? China was the world's largest economy until 1890 because ______. In 1890, the United States surpassed China to become the world's largest economy because ______.
people in all countries had approximately the same subsistence level of income and China had the largest population the benefits of the Industrial Revolution were greater in the United States than in China
Complete the sentence. Aggregate expenditure in the United States is equal to consumption expenditure plus investment ______.
plus government expenditure plus net exports
Economic growth is the persistent increase in ______. Economic growth is accompanied by inflation when the ______.
potential GDP; AD curve shifts rightward at a faster rate than the LAS curve shifts rightward
Harry produces 4 balloon rides and 2 boat rides an hour. Harry could produce more balloon rides without producing fewer boat rides. Harry is ______ his production possibilities frontier.
producing inside
What are the defining features of Keynesian macroeconomics and what policies do Keynesian macroeconomists recommend? The defining feature of the Keynesian view of macroeconomics is that the economy is ______. Keynesian macroeconomists recommend ______.
rarely at full employment policies that actively offset changes in aggregate demand that bring recession
What do we measure to verify that the economy of Singapore has caught up to and surpassed the economy of the United States, but that the economy of Mexico has not? By measuring ______, we can see that the economy of Singapore has caught up to and surpassed the economy of the United States, but that the economy of Mexico has not.
real GDP per person
On average in the United States, the inflation rate and the money growth rate minus the real GDP growth rate ______.
rise and fall together
Complete the sentence. According to classical growth theory, when real GDP per person ______, the population grows.
rises above the subsistence level
The United States economy is experiencing high inflation and real GDP is greater than potential GDP. Describe the actions taken by the Fed to restore full employment. The Fed conducts an open market ______ to hit the new ______ federal funds rate target. The monetary base ____. The supply of money _____ and the interest rate ______. The supply of loanable funds ______ and the long-term interest rate ______. Investment ______, and aggregate demand ______ with a multiplier effect.
sale; higher Decreases; Decreases; Rises; decreases; rises decreases; decreases
What are the defining features of classical macroeconomics and what policies do classical macroeconomists recommend? The defining feature of the classical view of macroeconomics is that the economy is ______. Classical macroeconomists recommend ______.
self-regulating and always at full employment policies that minimize the disincentive effects of taxes on employment, investment, and technological change
The Federal Reserve Act makes _______ responsible for the conduct of monetary policy.
the Board of Governors of the Federal Reserve System and the Federal Open Market Committee
The Fed's monetary policy instrument is _______. A monetary policy instrument is _______.
the federal funds rate; a variable that the Fed can directly control or closely target
The opportunity cost of the Rio Olympics is _______.
the goods and services that would have been purchased with R$7.0 billion if the facilities were not built unless Rio hosted the Olympics
The impulse in RBC theory is _______.
the growth rate of productivity that results from technological change
Complete the sentence. The fundamental precondition for labor productivity growth is _______.
the incentive system created by firms, markets, property rights, and money
One of the Fed's main policy tools is ______. A. the open market purchase, which is the purchase of money from the government B. the discount ratio, which is the minimum percentage of deposits that depository institutions are required to hold as reserves C. the last resort loan, which means that if a bank is short of reserves, it can borrow from the Fed Your answer is correct. D. the open market sale, which is a means of increasing bank reserves and increasing stability in the banking system
the last resort loan, which means that if a bank is short of reserves, it can borrow from the Fed
When GDP per person in China in 2016 is valued at ______, GDP per person in the United States is _______ times that in China.
the market exchange rate; 6.3
What information is given by the CPI? The CPI tells us ______.
the price level in a given period expressed as a percentage of the price level in the base period, which is by definition equal to 100
Why does demand not change when the price of a good changes with no change in the other influences on buying plans? Consider the demand for gym memberships. The demand for gym memberships does not change when a change in _______ occurs. An increase in the price of a gym membership _______.
the price of a gym membership decreases the quantity of gym memberships demanded and results in a movement up along the demand curve for a gym membership
Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate
Complete the sentence. If most prices have increased in the United States and not increased in Japan and other countries, ______.
then for purchasing power parity to hold, the value of the U.S. dollar in the foreign exchange market will fall
What determines potential GDP? Potential GDP is determined by ______.
the full-employment quantity of labor
If the natural unemployment rate increases and the expected inflation rate remains constant, then ______.
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward
The tax wedge is the gap between the before-tax and after-tax ______.
wage rates
Describe the sources of economic growth and identify the source of the growth slowdown. The sources of economic growth are _______. The source of the growth slowdown was _______.
work hours growth and labor productivity growth a combination of a slowdown in the growth of work hours and a slowdown in the growth of labor productivity
A country has been in existence for only two years. In the first year, receipts were $1.0 million and outlays were $1.5 million. In the second year, receipts were $1.5 million and outlays were $2.0 million. At the end of the second year, the government had issued debt worth ______.
$1 million
First Call, Inc., a smartphone company, plans to build a factory—one that costs $14 million if the real interest rate is 4 percent a year; a larger factory that costs $16 million if the real interest rate is 3 percent a year; or a smaller one that costs $12 million if the real interest rate is 5 percent a year. First Call expects its profit to crash next year. Explain how this decrease in expected profit influence First Call's demand for loanable funds. This decrease in expected profit _______ the demand for loanable funds and brings _______ the demand for loanable funds curve.
decrease; a leftward shift of
Complete the following sentences. The goods and services that we sell to people in other countries are ______. The goods and services that we buy from people in other countries are ______. The value of exports of goods and services minus the value of imports of goods and services is ______.
exports; imports; called net exports
How has China operated in the foreign exchange market, why, and with what effect? Between 1997 and 2005, China operated a _______ exchange rate. Since 2005, China has operated a _________ exchange rate. China makes its choice of exchange rate regimes to _______. The effect of China's choice of exchange rate regime is _______.
fixed; crawling peg control its inflation an increase in U.S. dollar reserves when China's target rate is above the equilibrium exchange rate and a decrease in U.S. dollar reserves when China's target rate is below the equilibrium exchange rate
If the interest rate on Treasury bills is lower than the federal funds rate, the quantity of overnight loans supplied ______ and the demand for Treasury bills ______. The price of Treasury bills _____ and the interest rate ______.
increases; decreases Falls; Rises
An increase in real GDP ______ the demand for money and financial innovation ______.
increases; generally decreases
The currency drain ratio for M1 is ______ than for M2, and the banks' reserve ratio for M1 is ______ than for M2. The U.S. M1 multiplier is _______ the U.S. M2 multiplier.
larger; larger smaller than
The money multiplier is the ratio of the change in the quantity of ______ to the change in the quantity of ______.
money; monetary base
How do changes in the demand for and supply of loanable funds change the real interest rate and quantity of loanable funds? The demand for loanable funds increases and the supply of loanable funds increases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______. The demand for loanable funds increases and the supply of loanable funds decreases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises, falls, or remains the same; increases rises; increases, decreases, or remains the same
What are the defining features of monetarist macroeconomics and what policies do monetarist macroeconomists recommend? The defining feature of the monetarist view of macroeconomics is that the economy is______. Monetarist macroeconomists recommend ______.
self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady policies that keep taxes low to avoid disincentive effects that decrease potential GDP
