macro final

interesting and valuable, since those events are capable of helping us to understand the past, the present, and the future

Economists regard events from the past as

not closely related

Economists who study economic mobility have found that the income of a grandfather and his grandson's income are

true

if a share of stock in Dell sells for $7o, the retained earnings per share are $5, and the dividend per share is $2, then the price earnings ratio is 10

true

if the current year CPI is 140, then the price level has increased 40 percent since the base year

false

in 2008 the top 5 percent of income earners accounted for over 50% of all income received by the United States' families

true

macroeconomics is the study of the economy as a whole

During the 1990s, U.S. inflation averaged about 2 percent per year

Which of the following is correct?

true

market failure refers to a situation in which the market does not allocate resources efficiently

operating at full capacity

According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is

More Danish-produced chips are sold in Denmark

Denmark is an importer of computer chips and adds a $5 per chip tariff to the world price of $12 per chip. Suppose Denmark removes the tariff. Which of the following outcomes is not possible?

income and expenditures

Gross domestic product measures

false

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline

true

If C+I+G>Y, then net exports and net capital outflow are both less than zero

true

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services

buys bonds. The increase will be larger, the smaller is the reserve ratio

The money supply increases when the Fed

is the most liquid asset

money

true

tax evasion is illegal, but tax avoidance is legal

the government's health plan for the poor

Medicaid is

false

opportunity cost refers to how many inputs a producer requires to produce a good

can reduce both frictional unemployment and the natural rate of unemployment

public policy

true

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values

true

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $625. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $500, then at that same point in time, loans for all banks amount to $2,625

false

Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left

lower so unemployment would be lower

If outsiders had more say in union contracts then it is likely that union wages would be

false

most economists support the infant-industry argument because it is so easy to implement in practice

false

when a government imposes a tariff on a product, the domestic price will equal the world price

true

when an american doctor opens a practice in bermuda, his production there is part of the US GNP

All of the above are correct

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

true

All explanations for the upward slope of the short-run aggregate supply curve suppose that the quantity of output supplied increases when the actual price level exceeds the expected price level

false

An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports

proportional tax.

An income tax in which the average tax rate is the same for all taxpayers would be considered a

makes trades less costly

As opposed to a payments system based on barter, a payments system based on money

The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers

At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true?

true

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should fall

real exchange rate is equal to one

If purchasing-power parity holds, then the value of the

declines

If the Mexican nominal exchange rate does not change, but prices rise faster abroad than in Mexico, then the Mexican real exchange rate

3 percent

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

true

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3

4% population growth and 7% real GDP growth

In 2009, the imaginary nation of Dorados had a population of 8,000 and real GDP of 3,000,000. During the year its real GDP grew by about 2.9%. Which of the following sets of growth rates is consistent with this growth in real GDP?

both national saving and private saving would fall

In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

public saving but not private saving

In a closed economy, if Y, C, and T remained the same, an increase in G would reduce

increased by 6.25 percent between 1998 and 2008

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker

Japan

Of the four countries below, the country that has the most income equality is

false

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise

rise and the quantity of dollars demanded in the market for foreign-currency exchange would rise

Other things the same, if the U.S. real exchange rate depreciated, then U.S. net exports would

is higher than expected so that firms believe the relative price of their output has increased

Other things the same, the aggregate quantity of output supplied will increase if the price level

true

People who report being not in the labor force but who, in fact, want to work but have given up trying to find a job after an unsuccessful search cause the reported unemployment rate to be lower than it would otherwise be

upward bias in the CPI inflation rate less severe than it used to be

Recent changes in methods used to compute the CPI have made the

2

Senator Smith says that in order to help poor countries develop, the United States should: 1. Prevent U.S. corporations from investing in poor countries because they take profits that the poor countries should have; 2. reduce or eliminate subsidizes to U.S. producers when poor countries have a comparative advantage producing those goods the U.S. subsidizes; 3. Work to promote political stability in poor countries; and 4. Reduce poor countries reliance on market forces in their economies. How many of these ideas are likely to help poor countries grow?

true

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control

true

Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates the principle that people respond to incentives.

Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?

11 trillion

Suppose the economy is closed with national saving of $2 trillion, consumption of $8 trillion, and government purchases of $1 trillion. What is GDP?

both the number of people unemployed and the labor force fall

Suppose there are a large number of men who used to work or seek work who now no longer do either. Other things the same, this makes

U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP is unaffected.

The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,

those who hold a lot of currency but accounts for a small share of U.S. government revenue

The inflation tax falls mostly heavily on

false

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed

increases by more than expected so that firms believe the relative price of their output has increased

The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price level

britain

The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 45 Indian rupee, or .6 British pounds per U.S. dollar. A double latte espresso and a cinnamon biscotti costs $6 in the U.S., 24 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 British pounds in Britain. According to these numbers, where is the real exchange rate between American and foreign goods the lowest?

104

The price index was 128.96 in 2006, and the inflation rate was 24 percent between 2005 and 2006. The price index in 2005 was

false

The results of a 2008 Los Angeles Times poll suggest that a significant majority of Americans believe that free international trade helps the American economy

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

He should complete the additional work and sell the car for $5000.

Tom is restoring a car and has already spent $3500 on the restoration. He expects to be able to sell the car for $5000. Tom discovers that he needs to do an additional $2000 of work to make the table worth $5000 to potential buyers. He could also sell the car now, without completing the additional work, for $2800. What should he do?

true

US prices rose at an average of about 4 percent over the last 70 years

not part of GDP because it is a transfer payment

Unemployment compensation is

all of the above are normative statements

Which of the following is an example of a normative, as opposed to positive, statement?

Political instability within the country increases modestly

Which of the following is most likely to increase the exports of a country?

compare the cost of staying one more semester to the benefits of staying one more semester

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

false

a production possibilities frontier is a graph that shows the combination of outputs that an economy should produce

true

about four out of 5 millionaires in the United States earned their money rather than inherited it

false

according to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive

true

an excess supply of money is eliminated by a decrease in the value of money

true

an increase in a country's saving rate permanently raises its productivity

false

an increase in demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving

false

an increase in the reserve requirement ratio increases reserves and decreases the money supply

true

discouraged workers are people who want to work but have given up trying to find a job after an unsuccessful search

can be useful, even if they are not particularly realistic

economic models

false

economists at the US department of the treasury help design US coins and paper money

false

for both parties to gain from trade, the price at which they trade must lie exactly in the middle of the two opportunity costs

true

human capital is the term economists use to refer to the knowledge and skills that workers acquire through education, training, and experience

true

in an open economy national savings equals domestic investment plus net capital outflow

true

other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future

true

substitution bias occurs because the CPI ignores the possibility of consumer substitituion toward goods that have become relatively less expensive

false

the GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers

true

the US has a more unequal income distribution than many other developed countries such as japan and canada

false

the administrative burden of complying with tax laws is a cost to the government but not to taxpayers

true

the amount of unemployment that a country typically experiences is a determinant of its standard of living

false

the basic tools of supply and demand are central to microeconomic analysis but are of little use to macroeconomics

the percentage of the population whose family income falls below a specified level.

the poverty rate is

false

the same size decrease in the amount of capital stock per worker will cause output per worker to fall by more in a country with a relatively high level of capital per worker than in a country with a relatively low capital per worker

true

trade with any nation can be mutually beneficial