Macroeconomics Final 2014

Assume that this economy produces only two goods Good X and Good Y. If year 1 is the base year, the value for this economy's realy GDP in year 2 is

$168

Refer to F 8.11, A $10 million increase in investment changes equilibrium output to

$240 million

How much of the tax is paid by buyers?

$5

THe equations above describe the demand and supply for Chef Ernie's. What are the equilibrium price and quantity for Chef Ernie's sushi?

$60 and 20 thousand

Bill's income is $1,000 and his net taxes are $350. His disposable income is

$650

IF consumption is $10,000 when income is $10,000 and consumption increase to $11,000 when income icnreases to $12,000 the MPS is

0.50

The unemployment rate is:

17.6%

What is Serena's opportunity cost of making a bracelet?

2 necklaces

In which case will the government collect more tax revenue?

20% tax rate and $90,000 average income`

Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD-AS model in the figure above, this would be depicted as a movement form

A to B

Suppose theFed lowers its target for the federal funds rate. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from

A to B

Suppose the economy is in a recession and no policy is pursued. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from

A to E

What is the difference between an increase in supply and an increase in quantity supplied

An increase in supply means the supply curve has shfited to the right while an increase in quatity supplied refers to a movement along a given supply curve in response to an increase in price

Which of the following is consistent with the graph depicted?

An increase in the proportion of income after net taxes used for consumption

An increase in taxes would be depicted as a movement from _____.

B to A

If the two countries have the same aount of resources and the the same technological knowledge. Which country has an absolute advantage in the production of cotton?

Indonesia

If the economy is at point L, what will happen?

Inventories have risen above their desired level, and firms decrease production.

If the probability of losing your job remains _____, a recession would be a good time to purchase a home because the Feds usually _____ interest rate during the time.

Low; Lowers

The hypothetical information in the table shows what the values for real GDP and the price level will be in 2015 if the Fed does not use monetary policy. Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2015?

The Fed should lower the target for the federal funds rate

Technological advancements have led to lower prices and an increase in the sale of digital cameras. How does this affect the digital photo printing paper market?

The demand curve for digital photo printing paper shifts to the right

IN January, buyers of gold expect tath the price of gold will rise in February What happens in the gold market in January, holding all else constant?

The demand curve shifts to the right

Which of the following states is TRUE?

The unemployment rate does not tell us anything about the duration of unemployment.

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

They will shift the aggregate demand curve to the right.

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Use open market operations to buy treasury bills

Why does the short-run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand?

Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices

In a close economy, private saving is equal to which of the following?

Y + TR - C - T

In a closed economy, which of the following equations reflects investment?

Y - C- G

Which of the following will lead to a decrease in the equilibrium interst rate in the economy?

a decrease in GDP

Which of the following would cause the money demand curve to shift to the left?

a decrease in real GDP.

Which of the following would encourage economic growth through increases in the capital stock?

a decrease in the government deficit, an increase in household savings, and a change from an income tax to a consumption tax

Contractionary monetary policy on the part of the Fed results in

a decrease in the money supply, an increase in interest rates, and a decrease in GDP.

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?

a decrease in the price of flour

Starting in long-run equilibrium when the aggregate demand curve is AD0 and the short-run aggregate supply curve is SRAS0 if there is a supply shock, such as a drastic increase in the price of oil, this will cause _____ and a movement to a shirt-run equilibrium at point _____

a leftward shift in SRAS2; a

The situation in which short-term interest rates are pushed to zero, leaving the central banks unable to lower them further is known as

a liquidity trap.

An increase in the interest rate causes

a movement up along the money demand curve

Health insurance should be provided to every citizen in a wealth nation such as the U.S. This statement is best described as

a normative statement

If consumers decide to be more frugal and save more out of their income, then this will cause

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

If Inventory investment is higher than firms planned

actual investment is greater than planned investment

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton to increase?

an increase in consumer income

Most economists believe that the best monetary policy target is

an interest rate

The law of demand implies, holding everything else constant, that

as the price of bagels increases, the quantity of bagles demanded will decrease

The total of consumer plus producer surplus is greatest

at the market equilibrium

In 2012, the city of Canfield collected $500,000 in taxes and spent $450,000. In 2012, the city of Canfield had a

budget surplus of $50,000.

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left, then the Fed

can maintain the interest rate target, but at a lower quantity of the money supply.

If the Federal Reserve targets the money supply, and the money demand curve shifts to the left, then the Fed

can maintain the money supply target, but at a lower interest rate.

Changes in the federal funds rate usually result in

changes in both short-term and long-term interest rates with more of an effect on short-term interest rates.

In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely pursue

contractionary fiscal policy

The demand for durable goods

declines by a greater percentage than does GDP during recessions

In the dynamic model of Ad-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely

decrease interest rates

Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

decrease.

If the government spending multiplier is 5 and government spending decreases by $200 billion, output will ______ by $_______ billion.

decrease; 1,000

An economic expansion tends to cause the federal budget deficit to _____ because tax revenues _____ and government spending or transfer payments _____.

decrease; rise;falls

A _____ in government spending, a ________ domestic currency, and ________ interest rates will shift a country's aggregate demand to the left.

decrease; stronger; higher

An increase in interest rate

decreases investment spending on machinery, equipment and factories, consumption spend on durable goods, and net exports.

An increase in individual income taxes _____ disposable income, which _____ consumption spending.

decreases; decreases

Borrowers are ______ of loanable funds, and lenders and ______ of loanable funds.

demanders;suppliers

China has a comparative advantage in the production of

digital cameras

Jake retired from the police force. He started working an hour or two a day at a paid job in city's courthosue. Jake is

employed

The ratio of the increase in _____ to the increase in _____ is called the multiplier

equilibrium real GDP; autonomous expenditure

An increase in aggregate demand results in a ______ in the _____

expansion; short run

THe total amount owed by the federal government to the public is the

federal debt

For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the

federal funds rate.

The interest rate that banks charge other banks for overnight loans is the

federal funds rate.

In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

firms are operating below capacity

Which of the following is NOT a category of fiscal policy?

government policies regarding money supply in the economy

If wanda's income is reduced to zero after she loses her job, her consumption will be _____ and her savings will be _____

greater than zero; less than zero

The goals of monetary poliby tend to be interrelated. For example, when the Fed pursues the goal of ______, it also can achieve the goal of _______ simultaneously.

high employment; economic growth

Expansionary monetary policy to prevent real GDP from falling below potential real gDP would cause the inflation rate to be relatively ______ and real GDP to be relatively _______

higher; higher

According to the "paradox of thrift," as individuals increase their savings,

income in the economy will fall because the decreased consumption that results from increased saving caused the economy to contrast.

During a recession, automatic stabilizers cause the federal deficit to

increase

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

increase in inflation

In the dynamic model of AD-AS in the figure 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 would most likely

increase interest rates

An increase in the interest rate

increase the opp. cost of holding money

Classifying discouraged workers as unemployed would

increase the unemployment rate

Suppose the households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency. Using the money demand and moeny supply model and assuming everything else is held constant, the equilibrium interest rate should

increase.

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

increase.

An increase in the interest rate should ______ the demand for dollars and the value of the dollar and next exports should _______.

increase; decrease

A recession tends to cause the federal budget deficit to ____ because tax revenues _____ and government spending on transfer payment _____.

increase; fall; rises

All else equal, a shortage of display screens used in the manuafacture of tablet computers would cause the equilibrium price of the tabler computesr to _______ and the equilibrium quiatity of the tablet computers to ______

increase;decrease

Inflation tends to _____ during the expansion phase of the business cycle and _____ during the recession phase of the business cycle.

increase;decrease

If the government wants to reduce unemployment, government purchases should be ______ and/or taxes should be ______.

increased; decreased

During recessions, government spending usually

increases because unemployment payments increase

Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for _____ is estimated to be larger than the multiplier effect for _____ and would therefore have a greater impact on expanding GDP.

increases in government spending; tax cuts

A falling aggregate price level ____ demand for country's exports and therefore _____ output demanded

increases; increases

During recessions, the number od discouraged workers _____ and this ____ the unemployment rate

increases; reduces

In the dynamic model of AD-AS in the figure 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 policy, this will result in

inflation higher than what would occur if no policy had been pursued

When the government runs a budget deficit, we would expect to see that

investment will fall

If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion the growth rate of real GDP between 2010 and 2011

is 3.75%

GDP is not a perfect measure of social welfare, and the society's economic well-being because

it does not include all economic activities in the ecnomy, it does not say anything about the distribution of incom,e GDP accounting rules do not adjust for production that caues negative externatlities

When a government runs a deficit

its debt increases

The presence of automatic stabilizers means that the federal deficit is _____ than it otherwise would be in a recession and _______ than it otherwise would be in an expansion.

larger; smaller

A stronger dollar will shift the U.S. aggreagete demand curve to the ____ and ____ output demanded.

left;decrease

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect. Compared to no supply-side effect, including a supply-side effect for the decrease in tax rates will cause the price level to increase _______ and real GDP to increase _____.

less;more

The _____ is vertical at full employment

long run aggregate supply curve

In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

lower interest rates.

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be _____ and real GDP to be ______.

lower;lower

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ______ and the real GDP to be _______

lower;lower

Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy?

lowers the interest rate, and firms increase investment spending

In a perfectly competitive market, there are _____ buyers, and _______ sellers

many;many

The term ______ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade

market

The federal reserve's two main ______ are the money supply and the interest rate.

monetary policy targets

THe Federal Reserve cannot target both the money supply and the interest rate because is does not control

money demand

When the Federal Reserve increase the money supply, at the previous equilibrium interest rate households and firms will now have

more money than they want to hold.

The money demand curve has a

negative slope because an increase in the interest rate decrease the quantity of money demanded.

IF the GDP deflator is greater than 100, then

nomial GDP is greater than real GDP

Discouraged workers are

not considered as part of the labor force

Double counting can be avoided by

not counting the value of intermediate goods in GDp

Assume that inventories declined by more than analysts predicted. This implies that

planned aggregate expenditure was greater than real GDP.

Structural unemployment is the

portion of unemployment that is due to changes in the structure of the economy that results in a significant loss of jobs in certain industries.

If real GDP in 2012 using 2011 prices is lower tha nominal GDP of 2012 then

prices in 2012 are higher than prices in 2011

Crowding out refers to a decline in ______, as a result of an increase in ______.

private expenditures; government purchases

In response to already low interest rates doing little to stimulate the economy, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as

quantitative easing.

In the figure, the money demand curve would move from MD1 to MD2 if

real GDP increased.

A good measure of the standard of living is

real GDP per capita

An increase in aggregate demand causes an increase in ______ only in the short run, but causes an increase in _____ in both the short run and the long run.

real GDP; the price level

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

real interest rate

During the turmoil in the market for sub prime mortgages in 2007 and 2008, the Fed increased the volume and discount loans. The goal of the Fed was to

reassure financial markets and promote financial stability.

The President of Vulcan hires you as an economic consultant. He is concerned that the output level in Vulcan is too high and that this will cause prices to rise. He feels that it is necessary to reduce output by $10 billion. He tells you that the MPC in Vulcan is 0.6. Which of the following would be the best advice to give to the Vulcan president?

reduce government purchases by $4 billion.

The objective of a contractionary fiscal policy is to

reduce inflation

The objective of an expansionary fiscal policy is to

reduce unemployment

Firms react to unplanned increase in inventories by

reducing output

If autonomous consumption increases, the size of the multiplier would

remain constant

If oil prices decrease, the short-run aggregate supply curve shifts ____ and output supplies will be _____

right;increased

Other things equal, when the U.S. aggregate price level falls, U.S. exports _____ and U.S. imports _____

rise; fall

A government;s debt is reduced when it

runs a surplus

In the figure above, when the money supply shifts form MS1 to MS2 at the interest rate of 3 percent households and firms will

sell Treasury bills.

When the Federal Reserve decrease the money supply, at the previous equilibrium interest rate households and firms will now want to

sell Treasury bills.

Suppose the demand curve for a product is horizontal and the supply curve is upward sloping. If a unit tax is imposed in the market for the product

sellers bear the entire burden of the tax

The Fed can increase the federal funds rate by

selling Treasury bills, which decreases bank reserves.

A breakthrough in solar energy research that halves the cost of electricity will:

shift the aggregate supply curve to the right.

Workers expect inflation to rise from 3% to 5% next year. As a result, this should

shift the short-run aggregate supply curve to the left

Economic decline is represented on a production possibilities frontier model by the production possibility frontier

shifting inward

Refer to Figure 8.1, An increase in the amount of consumption this household makes when this household's income is zero

shits the saving function downward

The aggregate expenditure model focuses on the _____ relationship between real spending and ______

short-run; real GDP

Suppose that in the beginning of 2012 the federal debt was $9 trillion. During 2012, the government balanced its budget. At the end of 2012, the federal debt

stayed the same

Scarcity

stems from the incompatibility between limited resources and unlimited wants

An auto worker in Ohio who loses her job becaues the company relocated the plant to another country represents an example of

structural unemployment

When the price of a good falls, consumers buy a larger quantity because of the _______ effect and the _______ effect

substitution; income

The natural rate of unemployment is generally thought of as the

sum of frictional unemployment and structural unemployment

The Federal Reserve can directly affect its monetary policy ______, which then affects is monetary policy _______.

targets; goals

What two factors are the keys to determining labor productivity?

technology and the quantity of capital per hour worked

THe GDP of the U.S> in 2012 was around $15.9 trillion. THis means

that the value of output in the U.S. in 2012 was around $15.9 trillion, that total spending on the final goods and services in the U.S. in 2012 was around $15.9 trillion, and that total income in the U.S> in 2012 was around $15.9 trillion

The MPC is

the change in consumption divided by the change in income

Consumer surplus is

the difference between the maximum a person is willing to pay and current market prices.

In the dynamic model of AD-AS in the figure 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

the economy is below full employment

How would the equilibrium interest rate respond to a change from an income tax to a consumption tax?

the equilibrium interest rate would fall.

If a firm expects that the price of its product will be higher in the future than it is today

the firm has an incentive to decrease supply now and increase supply in the future

An example of an automatic stabilizer is

the food stamp program

The difference between what a government spends and what it collects in taxes in a year

the government budget deficit or surplus

Aggregate demand increases if

the government increases spending

The use of fiscal policy to stabilize the economy is limited because

the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.

Potential GDP refers to

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

An increase in the price level causes

the money demand curve to shift to the right

When the Fed uses contractionary policy

the price level rises less than it would if the Fed did not pursue policy

Adam Smith's invisible hand refers to

the process by which individuals acting in their ow self-interest bring about a market outcome that benefits society as a while

Which of the following is an investment?

the purchase of a new printing press by a business

The tax multiplier is

the ratio of the change in the equilibrium level of output to the change in taxes

Fiscal policy refers to

the spending and taxing policies used by the government to influence the economy

If you earn additional $500 in disposable income one week for painting your neighbors house

the total of your consumption and saving will increase by $500

Which of the following is INCORRECT regarding tax revenues?

they increase during recessions

If the government imposes a maximum price that is above the equilibrium price,

this maximum price will have no economic impact

In the dynamic model of AD-AS in the figure 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, this will result in

unemployment rates higher than what would occur if not policy had been pursued.

Which of the following is a CORRECT sequence of events during a recession?

unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises

If aggregate output is greater than planned spending, then

unplanned inventory investment is positive

Marginal analysis involves undertaking an activity

until its marginal benefit equals marginal costs

IF 2011 is the base year, the inflation rate between 2011 and 2012 is

3.8%

From an aggregate expenditure model we know the following: C= 500 + 08.Y - the equilibrium level of consumption is equal to

3100

The equilibrium level of GDP is equal to

3250

If 2010 is the base year, the infaltion rate between 2010 and 2012 is

40.2%

From an aggregate expenditure model we know the following: C=500+08.Y - The multiplier is equal to:

5

Which of the following changes would cause the equilibrium to change to point A?

A decrease in the wages of apple workers and an increase in the price of oranges, a substitute for apples

If price goes from equilibrium to P1 consumer surplus changes by the area

E-C

Which of the following is one explanation as to why the aggregate demand curve slopes downwards?

Decreases in the price level raise real wealth and increase consumption spending

______ taxes and ______ interest rates in the U.S., along with ______ incomes in other countries, will shift the U.S> aggregate demand curve to the right.

Decreasing;falling;rising

Monetary policy refers to the actions the

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

Expansionary monetary policy refers to the _______ to increase real GDP

Federal Reserve's increasing the money supply and decreasing interest rates.

The value of what KFC produces in Japan is included in the U.S> ______ and in the Japanese _______

GNP;GDp

The Federal Reserve System's four monetary policy goals are

Price stability, high employment, economic growth, and stability of financial markets and institutions.

If the government purchases are $400 million, taxes are $700 million, and transfers are $200 million, which of the following is true?

Public savings is $100 million

What happens in the market for tropical hardwood tress if the governemnt restrict the amoutn of forest lands that can be logged?

S decreases, D no change, P increases, Q decreases

If there is a decrease in input prices, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____

SRAS2;P2

IF the two countries specialize and trade, who should export digital cameras?

South Korea

Does either China or South Korea have an absolute advantage and if so, in what product?

South Korea in both products