Macro Final

The current Federal Reserve Chairperson is

Janet Yellen

If the number of unemployed workers is 200 million, the number of employed workers is 300 million, and the working-age population is 800 million, what is the labor force participation rate?

Labor force participation=workers/total population ((200+300)/800) x 100= 62.5%

Which was the first company during the financial crisis that the government allowed to fail?

Lehman Brothers

Developing countries with low saving rates and poor levels of health and education are likely to experience

Low rates of growth in real GDP per capita

Consumption expenditures: $800 Investment expenditures: $200 Government purchases: $300 Exports: $100 Imports: $200 Wages: $800 Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals

$1,200

Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent Assets: reserves+$2,000 Liabilities: Deposits+$2,000 As a result of the transaction, the bank can make a maximum loan of

$1,800

What is nominal GDP in 2013 Product Quantity Price Movies 30 $7.00 Burgers 90 $2.50 Bikes 6 $1,100.00

(30x7)+(9x2.50)+(6x1,100)= 7,035

Using the table what is the approximate growth rate of real GDP from 2011 to 2012? Year Real GDP 2011 $10,950 2012 $11,425

(GDP2012-GDP2011)/GDP2011 (11,425-10,950)/10,950=2%

Suppose Bill Gates deposits $20 million into his checking account at Wells Fargo Bank. If the required reserve ratio is 10 precent, what is the maximum change in money supply?

Maximum increase in money supply: 200-20=180 Maximum increase in checking account: 20(1/0.1)=200

Which of the following is a function that money serves

Medium of exchange, unit of account, and store of value

Suppose that real GDP for 2010 was $10,000 billion and real GDP for 2011 was $11,000 billion. What is the rate of growth of real GDP between 2010 and 2011

10%

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

2%

The figure above shows the production possibilities frontier for Vidalia, a nation that produces 2 goods, roses and orchids. What is the opportunity cost of one dozen orchids

2.5 dozen roses

The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010?

40,000 x (218/131)= $66,565 or (40,000/131) = (x/218) 131x=8720000 x= $66,565

If the number of employed is 190 million, the working-age population is 230 million, and the number of unemployed is 10 million, then the unemployed rate is

5%

Disposable personal income is defined as

Personal income less personal taxes

Suppose the economy is at point A. If the economy experiences a supply shock, where will the eventual short-run equilibrium be?

B Moves from SRAS2 to SRAS1 and to the left. Does not stay on the LRAS.

An increase in taxes would be depicted as a movement from____, using the static AD-AS model in the figure above

B to A

Technological change is shown in the figure above by the movement from

B to E The point moves up from PF1 to PF2

The two government figures during the financial crisis (starting in 2008), the Fed chair and the Treasury secretary, were

Ben Bernanke and Hank Paulson

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

Each faces the problem of scarcity which necessitates trade-offs in akin economic decisions

The natural rate of unemployment is the amount of unemployment

Equal to frictional plus structural unemployment

Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and government expenditures are $2 billion. If GDP is $14 billion, which of the following could be true regarding exports and imports in the economy?

Exports are $15 billion, and imports are $10.5 billion

Monetary policy refers to the actions the

Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives

2012 2013 Nominal GDP $10,000 $12,000 Real GDP $9,500 $10,500 Given the information above, calculate the GDP delator in 2013

GDP deflator= (Nominal GDP/Real GDP) x 100 =(12,000/10,500) x 100=114

The cost of Thanksgiving dinner for 10, according to the Farm Bureau

Increased by 37 cents over last year

Year CPI 2012 175 2013 180 Suppose that the date above reflects price levels in the economy. What is the inflation rate between 2012 and 2013

Inflation rate= (P2013-P2012)/P2012 ((180-175)/175) x 100=2.9%

Consider the following data for a closed economy: Y=$12 trillion C=$8 trillion I=$2 trillion G=$2 trillion TR=$2 trillion T=$3 trillion Based on the information above, what is the level of public saving?

Public saving=T-TR-G Negative $1 trillion (a deficit of $1 trillion)

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

Quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

Ceteris Paribus (holding everything else constant), and increase in the expected future price level would be represented by a movement from

SRAS2 to SRAS1 (SRAS2 is to the right of SRAS1)

A critical function of the government in facilitating the operation of a market economy is

Setting up and enforcing private property rights

Increasing opportunity cost along a bowed out production possibilities frontier occurs because

Some factors of production are not equally suited to producing both goods or services

For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

Switzerland has the comparative advantage in watches

The tradeoff that the Federal Reserve and Department of the Treasury of the US faced at the beginning of the financial crisis of 2008 was between

Systemic risk and moral hazard

What two factors are the keys to determining labor productivity?

Technology and the quantity of capital per hour worked

In which of the following situations would the Fed conduct contractionary monetary policy?

The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

The Phillips curve

German automobile exports were hurt in 2008 as a result of the recession. How would this decrease if exports have affected Germany's aggregate demand curve?

The aggregate demand curve would have shifted to the left

Which of the following is counted in GDP?

The cost of a speed boat purchased by drug smugglers

If real GDP in the US is growing at an annual rate of 3.2% per capita and Bolivia's real GDP per capita is growing at a rate of 1.3%, which of the following would we expect in the long run? Assume real GDP per capita in the US begins at a level above that of real GDP per capita in Bolivia

The difference between the level of real GDP per capita in the US and real GDP per capita in Bolivia will increase over time

Which of the following is a normative economic statement?

The price of milk is too high

Trade-offs force society to make choices when answering what three fundamental questions?

What gods and services to produce; how will these goods and services be produced; and who receives them?

The economic analysis of minimum wage involves both normative and positive analysis. Consider the following consequences of a minimum wage: a) the minimum wage law causes unemployment b) unemployment would be lower without a minimum wage law c) minimum wage laws benefit some workers and harm others d) the minimum wage should be more than $7.25

Which of the consequences are positive statements and which are normative statements? -a,b, and c are positive statements and d is a normative statement

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania

Will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want

Which of the following is the best example of a tariff

a $5,000 per-car fee imposed on all sports utility vehicles imported into the US

When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is

a US export and a French import

Deflation refers to

a falling price level

Which of the following is an example of a worker experiencing cyclical unemployment

a freight liner employee that got laid off because of the recession of 2007-2009

The minimum wage is an example of

a price floor

Foreign investment can give a low-income country

access to funds for investment and access to technology

If the Fed pursues expansionary monetary policy

aggregate demand will rise, and the price level will rise

Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency

allow one to buy the same amount of goods and services

The____ production points on a production curve are the points along and inside the production possibility frontier

attainable

The difference between the value of the goods a country exports and the value of the goods a country imports is the country's

balance of trade

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then

changes in the CPI overstate the true rate of inflation

The level of long-run aggregate supply is affected by all of the following except

changes in the price level

In a competitive market when there is no deadweight loss,

consumer surplus plus producer surplus is maximized

Which of the following explains the ability of the US economy to avoid diminishing marginal returns and experience accelerating growth in the early to mid-20th century?

continuing technological change

Which of the following accurately describes the impact of the rule of law on a country's economic growth rate?

countries with a strong rule of law have faster economic growth

Consider the information above for a simple economy. Assume there are no traveler's checks Currency $1,000 Checking account $2,000 Savings account $5,000 Small-denomination time deposits $6,000 Noninstitutional money market fund shares $7,000

currency+checking account+traveler's check 1,000+2,000= $3,000

Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant

decrease in investment spending

An economic expansion tends to cause the federal budget deficit to _____ because tax revenues ______ and government spending on transfer payments____.

decrease; rise; falls

Fiscal policy refers to changes in

federal taxes and purchases that are intended to achieve macroeconomic policy objectives

In the dynamic AD-AS model above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B

firms are producing above capacity

If a country's currency is determined only by the demand and supply for that country's currency, the country is said to have a

floating exchange rate

Which of the following policies are designed specifically to directly promote technological change in an economy

government subsidization of research and development

When the economy enters a recessionary phase of the business cycle, unemployment tends to

increase

If the Fed pursues an expansionary monetary policy, assuming no crowding out, investment in the US will ______ and net exports will______

increase; increase

The law of demand implies, holding everything else constant, that as the price of yogurt

increases, the quantity of yogurt demanded will decrease

The federal government debt_____ when the federal government runs a deficit and ______ when the federal government runs a surplus

increases; decreases

In the dynamic aggregated demand and aggregate supply model, if AD shifts faster than AS

inflation occurs

An open economy is an economy that has

interactions in trade or finance with other economies

If the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to (point A is at the intersection of SRAS and AD and, and it is to the left of LRAS)

lower interest rates

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally

more difficult than with monetary policy

As the tax wedge associated with a given economic activity gets smaller, we would expect

more of that economic activity to occur

A decrease in aggregate demand will

move the economy to a lower point on the short-run Phillips curve

Economists refer to the series of additional increases in consumption spending that result from an initial increase in government expenditures as the ____ effect.

multiplier

According to the saving and investment equation, if net foreign investment falls by $35 million,

national savings in excess of domestic investment will decrease by $35 million

In the US today, how much gold will the Federal Reserve give you in exchange for $1?

none

If expected inflation falls, the long-run Phillips curve will

not be affected

If you transfer all of your currency to your checking account, then initially, M1 will______ and M2 will______.

not change; not change

Which of the following are goals of monetary policy?

price stability, economic growth, and high employment

Labor productivity will increase if the ____ increases and_____ .

quantity of capital per hour worked; technology improves

When individuals use all available information about an economic variable to make a decision, expectations are

rational

If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?

real interest rate= nominal interest rate- inflation rate 5%

If the Fed raises the interest rate, this will_____ inflation and ______ real GDP in the short run

reduce; lower

What factors are most important for determining exchange rate fluctuations in the long run?

relative price levels across countries, relative rates of productivity growth across countries, preferences for domestic and foreign goods across countries

A financial intermediary's main function is to match______ with excess funds to _____ with a shortage of funds

savers; borrower

If the Federal Open Market Committee wants to decrease the money supply through open market operations it will

sell U.S. Treasury Securities

According to the____ Philips curve, the unemployment rate and the inflation rate are negatively related

short-run

If banks do not loan out all their excess reserves, then the real world multiplier is

smaller than 1/RR

Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates?

some goods and services produced in any country are not traded internationally

If the Fed lowers its target for the federal funds rate, this indicates that

the Fed is pursuing an expansionary monetary policy

How does an increase in the budget deficit affect the demand for dollars on the foreign exchange market?

the demand for dollars rises

When the market value of the dollar rises relative to other currencies around the world, we say that

the dollar has appreciated

When the market value of the dollar falls relative to other currencies around the world, we say that

the dollar has depreciated

Suppose the economy is at point B in the figure above. Which of the following is true?

the expected rate of inflation is 3%

Potential GDP is defined as

the level of GDP attained when all firms are producing at capacity

The balance of payments includes all of the following accounts except

the national debt account

Which of the following models relies on emphasizing the importance of sticky wages and prices?

the new Keynesian model

The terms of trade refers to

the ratio at which a country can trade its exports for imports from other countries

Deadweight loss refers to

the reduction in economic surplus resulting from not being in competitive equilibrium

If national savings decreases

the sum of domestic investment and foreign investment must decrease

If interest rates in the US rise

the value of the dollar will rises the foreign investors increase their holdings of US investments

Refer to the figure above. If the price is $25

there would be a surplus of 300 units

Without technological advancement, how can a nation achieve economic growth?

through an increase in supplies of factors of production

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country

total consumption of goods is greater

The fastest growing category of government expenditure is

transfer payments

Scarcity refers to the situation in which

unlimited wants exceed limited resources

Assume that China has a comparative advantage in producing corn and exports corn to Japan. We can conclude that

China has a lower opportunity cost of producing corn relative to Japan

When Tesla, a U.S. company, purchases Italian-made Pirelli tries for its automobiles, the purchase is

A US import and Italian export

The term "market" in economics refers to

A group of buyers and sellers of a product and the arrangement by which they come together to trade

Which of the following policies would not help promote economic growth

A law requiring that the funds in an individual retirement account be taxed

If consumers decide to be more frugal (to be careful in how they use their money) and save more out of their income, then this will cause

A shift in the supply curve for loanable funds to the right

Suppose the economy is at point A in the figure above. Which of the following is true

Actual inflation and expected inflation are the same

Alejandro expects the price level to rise from 105 this year to 108 next year. If this price level rises to 110 next year instead of 108, which of the following will occur?

Alejandro's real wage falls

Which of the following will NOT shift the demand curve for a good

An increase in the price of the good

Which of the following is considered a negative supply shock?

An unexpected increase in the price of natural gas

In recent years the cost of producing wines in the US has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market?

The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

If the United States lifted the embargo on Cuban products, what would happen in the U.S. market for Cuban cigars

The supply curve would shift to the right

Which of the following best describes an assumption economists make about human behavior

They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time

The recession of 2007-2009 made many consumers pessimistic about their future income. How does this increased pessimism affect the aggregate demand curve?

This will shift the aggregate demand curve to the left