Macro Quiz

In a small economy, the money supply is $400,000, and the velocity of money is 3. The current average price level in the economy is 1. What is the level of real GDP in this economy?

$1.2 million

At an 8% interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate fell to 5%?

$190 billion

Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2009 to 2010?

1.68%

Using the inflation data in the table, assume that all loan contracts have fixed nominal interest rates of 10% and mature after 1 year. In which year did lenders gain relative to borrowers?

2003 (5,4)

Beginning at point A in the accompanying diagram, a positive money shock could result in a short-run growth rate of:

3.0%.

What was the unemployment rate of the country in 2009?

3.9% (255-245=10/255=)

What is the number of people who are employed at the market wage? How many people end up unemployed due to the implementation of a $10 minimum wage?

60; 40

Which of the following reasons could cause the supply curve for loanable funds to shift to the left from S1LF to SLF in the figure? (decrease in supply)

Consumers become less patient.

_____ is a decrease in the average level of prices, whereas _____ is a reduction in the inflation rate.

Deflation; disinflation

The ratio of the nominal value of economic output to the real value of economic output multiplied by 100 is the:

GDP deflator.

Why is the demand for loanable funds downward sloping?

More people borrow money when interest rates are low than when they are high.

If the actual rate of inflation turns out to be higher than the expected rate of inflation, what happens to the growth rate of output before expectations are updated?

The growth rate is higher than the Solow growth rate.

Suppose the inflation rate is 3% when a 15-year mortgage loan is given at a fixed rate of 4.5%. Five years later the inflation rate rises to 4%. What impact does this change have on the nominal interest rate and the real interest rate on the mortgage loan?

The nominal interest rate remains the same and the real rate interest decreases.

A $10,000 face-value bond costs $9,250 and matures in one year. If the interest rate on similar bonds rises by 2%, what is the approximate price change for this bond?

The price of the bond falls to $9,082.

Which of the following is TRUE of the effects of employment protection laws?

They create employment security for workers with a job.

From point X in the accompanying graph, a negative real shock could cause the economy to move to point:

Y.

In the market for loanable funds, _____ coordinates between the savers and borrowers.

a financial intermediary

Consider the three aggregate demand curves shown in the graph. Movement from point A to point D represents:

an increase in spending growth from 4% to 6%. (Increase in AD)

An investment tax credit results in:

an increase in the demand for loanable funds and an increase in the interest rate.

A negative real shock leads to:

an increase in the inflation rate but a decrease in the real GDP growth rate.

From an initial equilibrium in the basic model that includes only the AD and LRAS curves, aggregate demand shocks caused by changes in the growth of money supply:

are neutral in both the short run and the long run.

The crowding-out effect of government borrowing refers to a decrease in:

both private consumption and private investment.

A wealth shock in the economy is _____ spending suddenly changing in response to a sudden change in _____.

consumer; the value of assets

Because of money illusion, inflation often confuses:

consumers, workers, and firms.

A seasonal worker saves more when her income rises and saves less when her income falls. This behavior is referred to as:

consumption smoothing.

If you earned $10 an hour in 2005 when the CPI was 100, and you earn $11 an hour today when the CPI is 120, then your real wage rate has _____ since 2005.

decreased

Since the mid-1960s, the male labor force participation rate in the United States has _____ and the female labor force participation rate has _____.

decreased; increased

High and volatile inflation:

destroys the ability of market prices to send signals about the value of resources and opportunities.

Which of the following can explain the shift of the long-run aggregate supply curve from A to B in the figure?

development of new technology

The labor force is made up of:

employed and unemployed workers.

Increases in the minimum wage will most likely lead to:

higher unemployment.

Higher interest rates typically _____ saving, ceteris paribus.

increase

During a financial crisis in the early 2000s, the government of Argentina partially froze bank accounts for a year. Given the supply of savings and the demand to borrow functions, we would expect this action to cause the interest rate to:

increase and borrowing to decrease.

In the basic model with AD and LRAS curves only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will:

increase from 5% to 7%.

If stock prices go up and people feel richer, aggregate demand will:

increase.

If the economy experiences unexpected inflation, then the actual rate of return will be _____ than its equilibrium rate, and wealth will be distributed from _____.

less; lenders to borrowers

The U.S. stock of physical capital was:

lower in 1940 than in 1930.

The term "business fluctuations" refers to:

movement in real GDP around its long-term trend.

Two of the challenging factors faced by the U.S. Bureau of Labor Statistics when computing the consumer price index are:

new goods and better-quality goods.

Monetizing the debt occurs when a government:

pays off its debts by printing money.

A discouraged worker is a(n):

person who has given up looking for work but would still like a job if one is available.

According to the quantity theory of money, in the long run, an increase in money supply causes an increase in:

prices.

During the financial crisis, because of high leverage, losses on mortgages:

pushed banks toward insolvency.

When using the quantity theory of money to analyze the relation between inflation, money, real output, and prices, we typically assume that:

real output and the velocity of money are constant.

For savers, the role of financial intermediaries is to:

reduce the default risk on money they save and lend.

In the market for loanable funds:

savers supply loanable funds and borrowers demand loanable funds.

The supply of loanable funds comes from _____, and the demand for loanable funds comes from _____.

saving; investment

If the interest rate is 5% in this market for loanable funds, then:

savings exceed borrowing demands by $100 million.

Frictional unemployment is best defined as:

short-term unemployment caused by the difficulties of matching employees to employers.

Which of the following would likely cause a shortage in the loanable funds market?

strict limits on interest rates

Government can influence a person's choice to work or not through:

taxes on workers and benefits paid to nonworkers.

The Keynesian explanation for cyclical unemployment is:

that wage demands are too high relative to changing prices.

Which of the following do economists consider an investment?

the construction of a new factory

According to the quantity theory of money, the major cause of inflation in the long run is an increase in:

the growth rate of the money supply.

Inflation occurs when the growth in _____ exceeds the growth in _____.

the money supply; output

If an earthquake strikes, destroying a large number of factories, the long-run aggregate supply curve will move:

to the left.

The effect of a shock on the economy is larger when:

wages and prices are sticky.

Which of the following programs could help overcome structural unemployment?

worker retraining, limitations to unemployment benefits, and job-search assistance

The table provides CPI data for a certain country over five years. In which years did inflation occur?

year 2 and year 4 (108,112)

Which of the following correctly represents deflation?

π < 0

What affects labor force participation rates?

demographics, tax structure, and technological advances such as the birth control pill

If spending grows by 3%, real GDP grows by 5%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

falling; 2%

The aggregate demand curve shows all the combinations of _____ and _____ that are consistent with a specified rate of _____.

inflation; real GDP growth; spending growth

Inflation:

is an increase in the average price level.

Which panel in the figure shows the expected relationship between real GDP growth and unemployment?

panel A

Two influences on the rise in the female labor force participation rate in the United States are _____ and _____.

the rising proportion of services in national output; the availability of birth control

Which of the following is a concern among economists regarding the aging of the U.S. population?

Since older people are less likely to work, an aging population will lead to a decreased labor force participation rate in the United States and lower tax revenues.

A country's total civilian noninstitutionalized adult population is 1 million, and 500,000 people in this country are working, with another 20,000 people looking for work. Which of the following statements about the labor force statistics in this country is accurate?

The employment rate is 96.15% and the labor force participation rate is 52%.

According to the Fisher effect, a 5% decrease in the expected inflation rate results in:

a 5% decrease in the nominal interest rate.

The main reason people save during their working years is:

a preference toward a smooth consumption path over time.

Using the data in the table, country X is likely to be in a recession in:

both 1995 and 2005.

Deflation:

raises the real value of debts.

The natural unemployment rate is the rate of _____ unemployment plus the rate of _____ unemployment.

structural; frictional

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year?

2.0%

Which is NOT an example of a major reason that funds are borrowed to make large investments in physical capital and human capital?

A woman chooses to borrow funds to buy a new car rather than choosing to withdraw funds from her savings to pay in cash.

How do banks engage in specialization and division of labor?

Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to ensure that the funds are safely used.

Which of the following is an example of an unemployed person?

a recent college graduate looking for her first job

What information does the World Bank's "rigidity of employment index" provide?

a summary of firms' costs for hiring, firing, and adjusting employment hours

In the short run, the inflation rate is found where the _____ curves intersect, and in the long run, the inflation rate is found where the _____ curves intersect.

aggregate demand and short-run aggregate supply; aggregate demand and long-run aggregate supply

Consider the world oil market diagrams presented in the figure. Which of the panels correctly depicts what happened in the market for oil during the 1973 OPEC oil crisis?

panel B (decrease in short-run aggregate supply)