Macroeconomics Final 2017
Real wage rate
(Nominal wage rate ÷ GDP deflator) X 100
When the Federal Reserve Bank increases the federal funds rate, other
. interest rates rise, and consumption, firms' private investment and net exports decrease.
An economy with no income taxes or imports has a marginal propensity to consume of 0.75. The multiplier in the long run is _______.
0
If equilibrium expenditure changes by $50 billion that results from an increase in autonomous taxes by $80 billion, find the autonomous tax multiplier.
0.625
If disposable income increases from $4 trillion to $7 trillion, consumption expenditure increases from $3.5 trillion to $5.5 trillion, and nothing else changes, the marginal propensity to consume is
0.67
working age population is divided into two groups:
1. People in the labor force 2. People not in the labor force.
To be counted as unemployed, a person must be in one of the following three categories:
1. Without work but has made specific efforts to find a job within the previous four weeks 2. Waiting to be called back to a job from which he or she has been laid off 3. Waiting to start a new job within 30 days
If saving is $850 billion, investment is $500 billion, government expenditure on goods and services is $700 billion, net exports is $50 billion, and net taxes is $800 billion, then calculate government sector balance.
100 billion
An economy has a consumption function of C = 15 + 0.7Y, investment of 8, government expenditure of 12, exports of 20, and an import function of M = 0.2Y. What is equilibrium real GDP?
110
An economy has a consumption function of C = 10 + 0.8Y, investment of 6, government expenditure of 10, exports of 10, and an import function of M = 0.1Y. If government expenditure increases to 15, what is the increase in equilibrium expenditure?
16.65
An economy has a consumption function of C = 15 + 0.7Y, investment of 8, government expenditure of 12, exports of 20, and an import function of M = 0.2Y. If government expenditure increases by 10, what is the increase in equilibrium expenditure?
20
To keep pace with a growing population, approximately _______ jobs must be created each month
200,000
To keep pace with a growing population, approximately _______ jobs must be created each month. We would expect an increase in the growth rate of real GDP to _______ jobs and _______ unemployment.
200,000 increase; decrease
If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ percent a year.
3.5
In an economy, there is $150 million in currency held outside banks, $150 million in traveler's checks, $300 million in currency held inside the banks, $250 million in checking deposits, $700 million in savings deposits, $2,000 million in time deposits, and $600 million in money market mutual funds and other deposits. The value of M1 is ______ and the value of M2 is ______.
550 million; 3850 million
Choose the statement that is incorrect.
A government budget surplus competes with investment for funds.
The unemployment rate might underestimate the underutilization of labor resources because it does not include
A. marginally attached workers and part-time workers who want full-time jobs
Neoclassical growth theory is the proposition that _____ grows because technological change induces saving and investment that make _____ grow.
A. real GDP per person; capital per hour of labor
Choose the correct statement.
A. Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
A government budget surplus occurs, which increases the supply of loanable funds. The real interest rate ______, household saving ______,
A.falls; decreases and investment increases
M1 consists of currency held by _____ and _____, _____, and _____ owned by individuals and businesses.
A.individuals; businesses; traveler's checks; checkable deposits
An economy has a consumption function of C = 10 + 0.8Y, investment of 6, government expenditure of 10, exports of 10, and an import function of M = 0.1Y. What is the equation of the aggregate expenditure curve?
AE = 36 + 0.7Y
Choose the statement that is incorrect.
All unemployment at the natural unemployment rate is structural unemployment.
Choose the statement that is incorrect.
Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises
The Population Survey in Blogsville for the past month is given in the table: In Blogsville last month, ______ million people were in the labor force and ______ million people were in the working-age population. 1. 8787 million people had full-time jobs 2. 55 million people had part-time jobs 3. 33 million people were without work but were available for work and had made specific efforts to find a job within the past four weeks or were waiting to be recalled from a layoff or had a new job to start within the next 30 days 4. 22 million part-time workers were looking for full-time jobs 5. 3939 million people of working age did not have jobs and did not want jobs
B. 95; 134
Suppose the United States goes from a free-trade policy to a no-trade policy with other countries. Which of the following is a result of this new policy?
B. The U.S. no longer consumes outside its production possibilities frontier
CPI is calculated using the formula:
CPI = (Cost of basket at current-period prices ÷ Cost of basket at base-period prices) X 100.
Read the news clip, then answer the following question. Using the news clip's definition of productivity, choose the statement that is incorrect.
Changing the number of hours employed changes the growth of productivity.
Which of the following is money
Charlie's checking account deposit at the Bank of America.
Choose the statement that is incorrect.
Classical growth theory tells us that technological change induces a level of saving and investment that makes capital per hour of labor grow indefinitely.
Choose the correct statement
Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
Choose the statement that is incorrect.
D. Classical growth theory tells us that technological change induces a level of saving and investment that makes capital per hour of labor grow indefinitely.
Read the news clip, then answer the following questions. To implement QE3, the Fed would _______. As a result, the monetary base _______ .
D. purchase Treasury bonds or mortgage-backed securities; increases
Which of the following fiscal policies combats inflation?
Decreasing government spending
Choose the statement that is incorrect.
Deposits are not money because you cannot settle a debt with a deposit.
Choose the correct statement.
Deposits are money, checks are not money, and credit cards are not money. Your answer is correct.B.
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
Does not change; long run
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
Suppose a Canadian dollar bank deposit in Toronto earns 5 percent a year and a U.S. dollar bank deposit in Chicago earns 1 percent a year. What expectations do people hold if interest rate parity is to hold?
For interest rate parity to hold, people expect that the U.S. dollar will appreciate by 4 percent a year.
Choose the statement that is incorrect.
If a financial institution's net worth is positive, the institution must be solvent and liquid.
Choose the correct statement about purchasing power parity. 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 ______
If purchasing power parity does not prevail, the demand for U.S. dollars changes and the supply of U.S. dollars changes. fall; decreases and the supply of dollars increases
Choose the statement that is incorrect.
If the demand for Treasury bonds increases, the interest rate on the Treasury bond rises.
The BLS reported that in July 2012, employment decreased by 195,000 to 142,220,000 and the unemployment rate increased from 8.2 percent to 8.3 percent. About 3.4 million people were marginally attached workers and 0.9 million of them were discouraged. Calculate the change in unemployment in July 2012.
In July 2012, the number of unemployed changed by 151528.
Choose the statement that is incorrect.
In the long run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate
Choose the statement that is incorrect.
In the long run, China manages its exchange rate to keep its export prices low and to make it easier to compete in world markets.
Deflation in Japan arose because
Japan's money stock did not grow fast enough to accommodate the growth of potential GDP and a trend rise in velocity.
Deflation in Japan arose because _______.
Japan's money stock did not grow fast enough to accommodate the growth of potential GDP and a trend rise in velocity.
Read the news clip, then answer the following question. Based on this news clip, Barack Obama most likely follows the ______ school of thought and John McCain most likely follows the ______ school of thought.
Keynesian or new Keynesian; classical or new classical
In ______ cycle theory, fluctuations in investment driven by fluctuations in business confidence 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
Unemployment results in
Lost incomes and production and Lost human capital
Which of the following equations is incorrect?
MPC + MPS = ΔYD
The equation of exchange is ______ and it is true
MV = PY; by definition
Michael is an Internet service provider. On December 31, 2011, he bought an existing business with servers and a building worth $200,000. During his first year of operation, his business grew and he bought new servers for $500,000. The market value of some of his older servers fell by $200,000. Calculate Michael's gross investment, net investment, and depreciation during 2012.
Michael's gross investment during 2012 was $500000. Michael's depreciation during 2012 was $200000. Michael's net investment during 2012 was $300000.
Choose the statement about money that is incorrect.
Money in the United States today is made up of notes and coins held by individuals and businesses.
Choose the statement that is incorrect.
Most economists believe that the Ricardo-Barro effect holds in the loanable funds market.
1. Who does the BLS classify as being unemployed, a part-time worker, an employed person, a discouraged worker, and not in the labor force? Explain your classification. ______ are unemployed, ______ is a part-time worker, _____ is a discouraged worker, and _____ is not in the labor force. 2. How will the labor force change if the following events occur? 1. Sarah starts a second job 2. Pat finds a good job and is hired. 3. Mary takes a job at McDonald's while she waits to start her new job.
Pat and Mary; Sarah; Kevin; Johnie Events 1, 2, and 3 will not change the labor force.
Was the percentage change in real personal consumption expenditure greater or smaller than that in personal consumption expenditure?
Personal consumption expenditure in May 2012 was $11065 billion. The PCE deflator in June 2012 was 115.5. The percentage change in real personal consumption expenditure between May 2012 and June 2012 was −0.13 percent. The percentage change in personal consumption expenditure between May 2012 and June 2012 was −.03 percent. The percentage change in real personal consumption expenditure is greater than the percentage change in personal consumption expenditure.
Real GDP and Unemployment Over the Cycle
Potential GDP is the quantity of real GDP produced at full employment. Potential GDP corresponds to the capacity of the economy to produce output on a sustained basis. Real GDP minus potential GDP is the output gap. Over the business cycle, the output gap fluctuates and the unemployment rate fluctuates around the natural unemployment rate.
Choose the statement that is incorrect.
Real GDP per person grows whenever real GDP grows.
Unpredictable inflation or deflation is a problem because it
Redistributes income Redistributes wealth Lowers real GDP and employment Diverts resources from production
On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $12,000, and at the end of the year the market value of all of Sophie's beds was $27,000. What was Sophie's net investment?
Sophie's net investment during 2014 was $7,000.
Choose the correct statements. 1. The FOMC meets approximately every six weeks. 2. The Vice dash President of the United States is a member of the FOMC. 3. The president of the San Francisco Fed is always a member of the FOMC. 4. The president of the Federal Reserve Bank of New York is a member of the FOMC.
Statements 1 and 41 and 4 are correct.
Choose the correct statements. 1. Most people know the price of gum comma so it could serve as money because it is a unit of account. 2. Gum does not serve as money because it is not a good store of value. 3. Gum does not serve as money because it is not generally accepted in exchange for goods and services. 4. Because most people buy gum comma it can be used as money because it is a useful tool in barter.
Statements 2 and 3 are correct.
I = ______.
S + (T−G) + (M−X)
Which of the following statements about the Keynesian view of the macroeconomy is incorrect?
Technological change is the most significant influence on both aggregate demand and aggregate supply.
A typical family on Sandy Island consumes only juice and cloth. Last year, which was the base year, the family spent $30 on juice and $6 on cloth. In the base year, juice was $5 a bottle and cloth was $3 a length. This year, juice is $10 a bottle and cloth is $8 a length.
The CPI basket is 6 bottles of juice and 2 lengths of cloth. The CPI in the current year is 211.1 The inflation rate in the current year is 111.1 percent.
Suppose the United States goes from a free-trade policy to a no-trade policy with other countries. Which of the following is a result of this new policy?
The U.S. no longer consumes outside its production possibilities frontier
natural unemployment rate changes over time and is influenced by many factors
The age distribution of the population The scale of structural change The real wage rate Unemployment benefits
Choose the statement about growth in labor productivity that is incorrect.
The demand for labor increases, the production function does not change, but a movement occurs along the production function.
The table provides some data on real GDP and the population of Sudico in 2007 and 2008. What is the growth rate of real GDP in Sudico in 2008? What is the growth rate of real GDP per person in Sudico in 2008? Year Real GDP (billions of pesosbillions of pesos) Population (billions) 2007 330,000 550 2008 374,088 572
The growth rate of real GDP in SudicoSudico in 2008 is 13 percent. The growth rate of real GDP per person in SudicoSudico in 2008 is 9 percent.
The table gives information about the U.S. labor market in 2012. What is the labor force participation rate? Labor Market Data Not in labor forceNot in labor force 88.3 million Labor forceLabor force 155.0 million EmployedEmployed 142.5 million
The labor force participation rate is63.7 percent.
Choose the statement that is incorrect.
The nominal interest rate is the real interest rate adjusted to remove the effects of inflation on the buying power of money.
Choose the statement that is incorrect.
The presence of a banking system in Britain in the middle 1700s started the Industrial Revolution.
The U.S. price level rises.
The quantity of US real GDP demanded decreases
Choose the statement that is incorrect.
The unemployment rate is zero when the economy is at a business cycle peak.
Choose the statement about flexible exchange rates that is incorrect.
The world economy has operated a flexible exchange rate regime since the end of World War II.
Read the news clip, then answer the following question. Choose the statement that is incorrect. Geithner Urges Action on Economy Treasury Secretary Timothy Geithner is reported as having said that the United States can no longer rely on consumer spending to be the growth engine of recovery from recession. Washington needs to plant the seeds for business investment and exports. "We can't go back to a situation where we're depending on a near short-term boost in consumption to carry us forward," he said. Source: The Wall Street Journal, September 12, 2008
Treasury Secretary Timothy Geithner most likely follows the monetarist school of thought if he thinks that a falling money wage rate will respond quickly to changes in government tax policy.
Alternative measurement of unemployment
U-1: Those unemployed for 15 or more weeks U-2: Unemployed job losers U-3: The official unemployment rate U-4: U-3 + Discouraged workers U-5: U-4 + Other marginally attached workers U-6: U-4 + Part-time workers who want full-time jobs All measures increase together in recession.
U.S. exports in the European Union boom.
U.S. aggregate demand increases.
The quantity of U.S. dollars demanded in the foreign exchange market depends on all of the following except ______.
U.S. demand for imports
The U.S. inflation rate is expected to rise next year.
US aggregate demand increases
U.S. firms build new gas-fuel utilities.
US aggregate demand increases
The quantity theory of money tells us that _______.
a change in the money growth rate brings an equal change in the inflation rate
discouraged worker
a marginally attached worker who has stopped looking for a job because of repeated failure to find one.
Deflation is _______.
a persistently falling price level
marginally attached worker
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
A person is in the labor force if any one of the following statements is true except that he or she is ______.
aged 16 and over and not in jail, hospital, or some other form of institutional care
An inflation that starts because _____ is called demand-pull inflation.
aggregate demand increases
You observe that unplanned inventories are decreasing. You predict that there will be _______.
an expansion
A demand-pull inflation begins with _______.
an increase in 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
If the U.S. exchange rate changes from $1.00 Canadian to $1.05 Canadian, then the U.S. dollar has _______ and the Canadian dollar has _______.
appreciated; depreciated
A Classical macroeconomist believes that the economy is self-regulating and always _____.
at full employment
The natural unemployment rate is the unemployment rate when the economy is _____.
at full employment
A multiplier is the amount by which a change in any component of _____ is magnified or multiplied to determine the change in _____ and _____ that it generates.
autonomous expenditure; equilibrium expenditure; real GDP
price level
average level of prices and the value of money.
Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during _____ and decreases during
a recession; an expansion
A depository institution creates liquidity by ______. Depository institutions pool risk because they use funds obtained from ______ depositors to make loans to ______ borrowers. Depository institutions minimize the cost of monitoring borrowers by ______.
borrowing short and lending long; many; many using specialized resources that have a much lower cost than what households would incur if they had to undertake the activity individually
f the interest rate is 5 percent, people will
buy bonds, bid up their price, and the interest rate will fall
The four price indexes that are alternatives to the CPI are ______. The chained CPI ______.
chained CPI, personal consumption expenditure deflator, GDP deflator, and core PCE . overcomes the sources of bias in the CPI by incorporating substitutions and using current and previous period quantities
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
As a result of financial innovation, ______ have become ______
checking deposits at thrift institutions; an increasing percentage of M1
A ______ macroeconomist believes that the economy is self-regulating and always at full employment. A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
classical; Keynesian
The components of aggregate expenditure that are influenced by real GDP are
consumption expenditure and imports
The components of aggregate expenditure that are influenced by real GDP are ______.
consumption expenditure and imports
Read the news clip, then answer the following question. Pakistan is experiencing ______ inflation. Pakistan: Is it Cost-Push Inflation? With CPI already spiking 11.8 percent for the first ten months of the fiscal year, the average CPI inflation for the same period last year stood at 22.35 percent. Some economists insist the current bout of inflationary pressures is spawned by increasing prices of fuel, food, raw materials, transportation, construction materials, elimination of energy subsidies, etc as indicated by the spike in the wholesale price index (WPI), which rose 21.99 per cent in April from a year earlier. Source: Daily the Pak Banker, May 22, 2010
cost-push
Stagflation occurs when
costs increase
Depository institutions provide four benefits, which are ______.
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk This is the correct answer.D.
The main components of money in the United States today are ______.
currency and deposits at banks and other depository institutions
Suppose the Fed sells $50 million of government securities to the Bank of America. The Fed's total assets ______ and its total liabilities ______.
decrease by $50 million; decrease by $50 million
To increase the quantity of money, the Fed might do any of the following except
decrease the money multiplier
The expectations about the exchange rate ______ the demand for U.S. dollars and ______ the supply of U.S. dollars.
decreased; increased
The tables describe an economy's labor market and its production function in 2014. In 2015, the population increases and labor hours supplied increase by 30 at each real wage rate. The economy's standard of living ______ in 2015 because ______.
decreased; real GDP per person is smaller in 2015 than in 2014
Read the news clip, then answer the following question. A fall in inventories _______ aggregate demand Inventory Investment Decreases When real GDP increased in the second quarter of 2012, consumption expenditure, exports, and fixed investment increased but business inventory investment fell. Source: Bureau of Economic Analysis, August 29, 2012
decreases
the exchange rate ffalls from 84 yen per U.S. dollar to 71 yen per U.S. dollar. What is the effect of this change on the quantity of U.S. dollars that people plan to sell in the foreign exchange market? The quantity of U.S. dollars that people plan to sell in the foreign exchange market _______.
decreases and a movement down along the supply curve of U.S. dollars occurs
A fall in the expected future exchange rate ______ the demand for U.S. dollars. A decrease in the U.S. demand for imports _______ the demand for U.S. dollars.
decreases; does not change
A decrease in world demand for U.S. exports ______ the demand for U.S. dollars. A rise in the U.S. interest rate differential ______ the demand for U.S. dollars. A fall in the expected future exchange rate ______ the demand for U.S. dollars. Upper A decrease in the U.S. demand for imports _______ the demand for U.S. dollars.
decreases; increases decreases; does not change
Full employment
defined as the situation in which the unemployment rate equals the natural unemployment rate. When the economy is at full employment, there is no cyclical unemployment or, equivalently, all unemployment is frictional and structural
When the pace of job creation exceeds the increase in population, the unemployment rate sometimes increases because
discouraged workers return to the labor force
The relationship between saving and _____, other things remaining the same, is called the saving function.
disposable income
The Bank of America's total assets ______ and its total liabilities ______.
do not change; do not change
The price of a Big Mac in different countries _______ provide a valid test of purchasing power parity because _______.
does not; purchasing power parity is determined by the price level not by the individual prices
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
does not change; long-run
The table provides some data on real GDP and the population of PacificaPacifica in 2009 and 2010. If the growth rates of 2010 are maintained in future years, real GDP per person in Pacifica will
double by 2024
The Rule of 70 states that the number of years it takes for the level of any variable to ______ is approximately
double; 70 divided by the annual percentage growth rate of the variable
A new Classical view is that business cycle fluctuations are the _____ responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of _____.
efficient; technological change
Interest rate parity means
equal rates of return
A below full-employment equilibrium is an equilibrium in which potential GDP _____ real GDP.
exceeds
The supply of loanable funds is influenced by all of the following except ______.
expected profit
Net exports is _____ of goods and services minus _____ of goods and services.
exports; imports
Normally when the pace of job creation exceeds the increase in population, the unemployment rate
falls
Between 2007 and 2012, the U.S. exchange rate ______ against the Japanese yen because the U.S. interest differential _______ ______ against the yen
fell; decreased and because currency traders expected the dollar to depreciate
According to RBC theory, the source of the business cycle is _______, which result mainly from _______
fluctuations in productivity; fluctuations in the pace of technological change
Students who leave school in the spring and look for work are one source of
frictional unemployment
An open market operation is the purchase or sale of _____ - _____ - by the _____ in the open market.
government securities; U.S. Treasury bills and bonds; New York Fed
When the unemployment rate is less than the natural unemployment rate, real GDP is ______ than potential GDP and the output gap is
greater; positive
When the unemployment rate is less than the natural unemployment rate, real GDP is ______ than potential GDP and the output gap is ______.
greater; positive
According to the Ricardo-Barro effect, a government budget deficit ______ the real interest rate. According to the Ricardo-Barro effect, when a government budget deficit occurs today, ______.
has no effect on saving increases, the supply of loanable funds increases, and the real interest rate does not change
With 3.4 million marginally attached workers and 0.9 million of them discouraged workers, what are the characteristics of the other 2.5 million marginally attached workers? The other 2.5 million marginally attached workers
have stopped looking for work for reasons other than their inability to find a job
The Fed is the lender of last resort, which means
if depository institutions are short of reserves, they can borrow from the Fed
Read the news clip, then answer the following questions. If speculation like that made by Mr. Reddy becomes widespread, the demand for U.S. dollars will ______ and the supply of U.S. dollars will ______. Indian Entrepreneur Seeks Opportunities Rahul Reddy, an Indian real estate entrepreneur, believes that "The United States is good for speculative higher-risk investment." He profited from earlier investment in Australia and a strong Australian dollar provided him with the funds to enter the U.S. real estate market at prices that he believed "we will probably not see for a long time." He said, "The United States is an economic powerhouse that I think will recover, and if the exchange rate goes back to what it was a few years ago, we will benefit." Based on an article in Forbes, July 10, 2008
increase; decrease rise
In March 2007, the U.S. unemployment rate was 4.4 percent. In August 2008, the unemployment rate was 6.1 percent. Assuming that the labor force remained constant between March 2007 and August 2008, then the number unemployed _______.
increased
Aggregate demand increasesincreases if expected future income, inflation, or profits ______. And aggregate demand increasesincreases if fiscal policy ______ government expenditure. Aggregate demand increasesincreases if fiscal policy ______ taxes or ______ transfer payments. Aggregate demand increasesincreases if monetary policy ______ the quantity of money and ______ interest rates.
increaseincrease; decreases; increases increases; decreases
If an economy experiences a decrease in the money supply, short-run unemployment
increases, and short-run output decreases.
An increase in world demand for U.S. exports ______ the demand for U.S. dollars. A fall in the U.S. interest rate differential ______ the demand for U.S. dollars.
increases; decreases
Yesterday, the current exchange rate was $0.95 Canadian per U.S. dollar and traders expected the exchange rate to remain unchanged for the next month. Today, with new information, traders now expect the exchange rate next month to rise to $1 Canadian per U.S. dollar. The revised expected future exchange rate ______ the demand for U.S. dollars and ______ the supply of U.S. dollars.
increases; decreases
An increase in labor productivity ______ the real wage rate and ______ the equilibrium quantity of labor.
increases; increases
Potential GDP ______ and potential GDP per hour of labor
increases; increases
An increase in labor productivity ______ the real wage rate and ______ the equilibrium quantity of labor.
increases; increases; increases; increases
When costs increase and the Fed wants to return the economy to full employment, the Fed responds by ______ the quantity of money. If the Fed continually responds to successive increases in costs, a ______ inflation evolves.
increasing; cost-push
When the Federal Reserve Bank increases the federal funds rate, other
interest rates rise; and consumption, firms' private investment, and net exports decrease
When the Federal Reserve Bank increases the federal funds rate, other
interest rates rise, and consumption, firms' private investment and net exports decrease.
In the short run, the quantity of real money and real GDP are given and the ______ adjusts to achieve equilibrium. In the long run, supply and demand in the loanable funds market determines the
interest rate; real interest rate
in the short run, the quantity of real money and real GDP are given and the ______ adjusts to achieve equilibrium. In the long run, supply and demand in the loanable funds market determines the ______.
interest rate; real interest rate In the long run, the price level adjusts to make the quantity of real money supplied equal the quantity demanded.
In monetarist cycle theory, fluctuations in both _____, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuation in aggregate demand.
investment and consumption expenditure
A fixed exchange rate is one that _______.
is set by the government or the central bank and is achieved by central bank intervention in the foreign exchange market
The key proposition of new growth theory that makes growth persist is that ______ is not subject to diminishing returns.
knowledge capital
According to new growth theory, ______ experience diminishing returns.
knowledge is capital that does not
For a given increase in aggregate demand, the steeper the slope of the short-run aggregate supply curve, the ______ is the increase in the price level and the ______ is the multiplier effect on real GDP in the short run.
larger; smaller
The three main types of markets for financial capital are
loan markets, bond markets, and stock markets
The Federal Open Market Committee is the Fed's _____ committee.
main policy making
A decrease in the marginal propensity to import _______, everything else remaining the same.
makes the multiplier larger
An increase in income taxes _______, everything else remaining the same.
makes the multiplier smaller
Money is any commodity or token that is generally acceptable as a
means of payment
Consumer Price Index, or CPI
measures the average of the prices paid by urban consumers for a "fixed" basket of consumer goods and services The CPI is defined to equal 100 for the reference base period. Currently, the reference base period is 1982-1984.
Purchasing power parity is equal value of _____ - a situation in which _____ buys the same amount of goods and services in different currencies.
money; money
The multiplier is greater than 1 because the change in autonomous expenditure leads to _______.
more induced expenditure
Between 1960 and 2010, the gap between real GDP per person in the United States and real GDP per person in Japan ______.
narrowed
natural unemployment rate
natural unemployment as a percentage of the labor force.
In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
new classical, new Keynesian
In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
new classical; new Keynesian
The key idea of classical growth theory that leads to the dismal outcome is that
no matter how much technological change occurs, real GDP per person is always pushed back toward the subsistence level
working-age population
number of people aged 16 years and older who are not in jail, hospital, or some other institution2. People too young to work (under 16 years of age) or in institutional care
To increase the money supply, the Fed may conduct
open market purchases or decrease the discount rate
To increase the money supply, the Fed may conduct
open market purchases or decrease the discount rate.
unemployment rate
percentage of the labor force that is unemployed. (Number of people unemployed ÷ labor force) X 100 increases in a recession and reaches its peak value after the recession ends
labor force participation rate
percentage of the working-age population who are members of the labor force. (Labor force ÷ Working-age population) X 100
employment-to-population ratio
percentage of the working-age population who have jobs. (Employment ÷ Working-age population) X 100
deflation
persistently falling price level is called
inflation
persistently rising price level is called
Assume that the preconditions for labor productivity growth are in place. The pace of labor productivity growth is influenced by all of the following except
population growth
According to mainstream business cycle theory, ______ grows at a steady rate and ______ grows at a fluctuating rate.
potential GDP; aggregate demand
In the long run,______ adjusts to make the quantity of real money supplied equal the quantity demanded.
price level
The sum of _____ is called national saving.
private saving and government saving
Workers in developing Asian economies who work more hours than Americans are not the world's most productive workers because
productivity depends on how much real GDP each hour of labor can produce
The Federal Reserve (usually called the Fed) is the central bank of the United States, a _____ authority whose main role is the regulation of
public; banks and money
The Federal Reserve (usually called the Fed) is the central bank of the United States, a _____ authority whose main role is the regulation of _____.
public; banks and money
An open market operation is the
purchase or sale of government securities by the Federal Reserve System in the loanable funds market
In the long run, an increase in the quantity of money _______.
raises the price level and lowers the value of money
In real business cycle theory, _______ are the main source of economic fluctuations.
random fluctuations in productivity
Neoclassical growth theory is the proposition that _____ grows because technological change induces saving and investment that make _____ grow.
rea GDP per person; capital per hour of labor
When _____ there is a full-employment equilibrium
real GDP equals potential GDP
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 economies of Central and South America have not.
real GDP per person
Stagflation is a combination of a ______ in the price level and ______ in real GDP.
rise; a decrease
In June 2011, the exchange rate was 0.69 euros per U.S. dollar. By June 2012, the exchange rate had risenrisen to 0.79 euros per U.S. dollar. As the exchange rate rises, prices of U.S.-produced goods and services to foreigners ______ and the volume of U.S. exports ______.
rise; decreases
In June 2011, the exchange rate was 0.69 euroseuros per U.S. dollar. By June 2012, the exchange rate had risen to 0.79 euros per U.S. dollar. As the exchange rate rises, prices of U.S.-produced goods and services to foreigners ______ and the volume of U.S. exports ______.
rise; decreases
Between 2012 and 2014, the U.S. exchange rate ______ against the Japanese yen because the U.S. interest rate differential was expected to _______.
rose; increase
Suppose a country has a crawling peg exchange rate policy against the U.S. dollar and the equilibrium exchange rate in units of foreign currency per U.S. dollar is above the target rate. To keep the exchange rate pegged at its target level, the country's central bank must ______ U.S. dollars and ______ its foreign currency reserves.
sell; decrease
An economy is at potential GDP when it experiences an increase in costs. The economy experiences _______.
stagflation
The Bureau of Labor Statistics reports six alternative measures of the unemployment rate. Choose the correct statements. a.U-2 adds all marginally attached workers to the official unemployment rate. b. U-1 measures those who are unemployed for 15 weeks or more. c. U-2 measures the job losers. d. U-4 is the official unemployment rate.
statements b and c are correct
Suppose that the number of jobs in the fishing industry decreases but the number of jobs in the travel industry increases. Initially, ______.
structural unemployment increases
labor force
sum of employed and unemployed workers.
The loanable funds market is
the aggregate of all the individual financial markets
The loanable funds market is ______.
the aggregate of all the individual financial markets
The price level is ______.
the average level of prices, and the value of money
In the short run, the nominal exchange rate is determined by ______. And in the short run ______.
the demand for US dollars and the supply of US dollars in the foreign exchange market; a change in the nominal exchange rate brings an equivalent change in the real exchange rate
Choose the statement that is incorrect.
the demand for labor is the the relationship between the quantity of labor demanded and the money wage rate
The quantity of U.S. dollars supplied in the foreign exchange market depends on many factors, the main ones being
the exchange rate, U.S. demand for imports, interest rates in the United States and other countries, and the expected future exchange rate
The marginal propensity to save is
the fraction of a change in disposable income that is saved
The marginal propensity to consume is
the fraction of a change in disposable income that is spent on consumption
The marginal propensity to consume is ______ The marginal propensity to save is _______. The marginal propensity to consume is equal to ______, and the marginal propensity to save is equal to ______.
the fraction of a change in disposable income that is spent on consumption the fraction of a change in disposable income that is saved C ÷ΔYD; ΔS ÷ΔYD
The velocity of circulation is the average number of times a dollar of money is used annually to buy ______. The formula used to measure the velocity of circulation, V, is ______, where P is the price level, Y is real GDP, and M is the quantity of money.
the goods and services that make up GDP; V = (P times ×Y) divided by ÷M
Cyclical unemployment
the higher than normal unemployment at a business cycle trough and lower than normal unemployment at a business cycle peak. A worker who is laid off because the economy is in a recession and is then rehired when the expansion begins experiences cyclical unemployment.
One of the Fed's main policy tools is
the last resort loan, which means that if a bank is short of reserves, it can borrow from the Fed
An economy has a zero marginal tax rate. When real GDP increases, the change in consumption expenditure equals _______. When real GDP increases, the change in imports equals _______.
the marginal propensity to consume times ×the increase in real GDP the marginal propensity to import times ×the increase in real GDP
When real GDP increases, the change in consumption expenditure equals
the marginal propensity to consume ×the increase in real GDP
When real GDP increases, the change in imports equals
the marginal propensity to import ×the increase in real GDP
A cost-push rise in the price level can arise from an increase in
the money wage rate or money prices of raw materials
When cyclical unemployment increases and other things remain the same, ______.
the natural unemployment rate does not change
The unemployment rate tends to actually underestimate the unemployment problem, especially during a recession, because
the number of marginally attached workers increases, but these workers are not included in the official unemployment rate
The unemployment rate tends to actually underestimate the unemployment problem, especially during a recession, because ______.
the number of marginally attached workers increases, but these workers are not included in the official unemployment rate
The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______, when everything else remains the same.
the price level
The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______, when everything else remains the same. A movement along the aggregate demand curve occurs if _______.
the price level the price level changes and all other factors remain unchanged
A movement along the aggregate demand curve occurs if
the price level changes and all other factors remain unchanged
An open market operation is ______.
the purchase or sale of securities by the Federal Reserve System in the loanable funds market
At the equilibrium exchange rate _______.
the quantity of dollars demanded equals the quantity of dollars supplied
A stagflation can turn into a cost-push inflation process when _______.
the quantity of money persistently increases
An increase in the price level when the money wage rate remains unchanged increases
the quantity of real GDP supplied
The main influences on the quantity of money that people and businesses plan to hold include all of the following except
the quantity of reserves
Gross investment is ______. Net investment is ______.
the total amount spent on new capital; the change in the value of capital
Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate
Natural unemployment
the unemployment that arises from frictions and structural change when there is no cyclical unemployment. Natural unemployment is all frictional and structural unemployment.
Depository institutions have made innovations that have changed the composition of money in all of the following ways except
the use of currency has fallen significantly
If most prices have decreased in the United States and not decreased 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 rise
When the Fed buys securities from a bank, ______.
the bank's reserves increase but its deposits do not change
If the expected inflation rate increases and the natural rate of unemployment remains constant, then
the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift
If the expected inflation rate increases and the natural rate of unemployment remains constant, then _______.
the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift
The yuan was ______ relative to purchasing power parity and the Swiss franc was ______ relative to purchasing power parity.
undervalued; overvalued
Structural unemployment
unemployment created by changes in technology and foreign competition that change the skills needed to perform jobs or the locations of jobs. Structural unemployment lasts longer than frictional unemployment. Manufacturing jobs in the U.S.A: mechanization of the industries, cheap labor in the rest of the world.
Frictional unemployment
unemployment that arises from normal labor market turnover. The creation and destruction of jobs requires that unemployed workers search for new jobs. Increases in the number of people entering and reentering the labor force and increases in unemployment benefits raise frictional unemployment. Frictional unemployment is a permanent and healthy phenomenon of a growing economy.
The marginal propensity to consume is equal to ______, and the marginal propensity to save is equal to
ΔC divided by ΔYD; ΔS divided by ΔYD
Arbitrage is the practice of seeking to profit by _____ in one market and _____ in another related market.
buying; selling for a higher price
Read the news clip, then answer the following questions. The news clip refers to ______ inflation when it discusses rising production costs. "Rising labor productivity" can neutralize the effect on the inflation rate of "higher input costs" because ______.
cost-push; it increases short-run aggregate supply and long-run aggregate supply with no slowdown in aggregate demand growth
If an economy experiences a decrease in the money supply, short-run unemployment
increases, and short-run output decreases.
An increase in real GDP ______ the demand for money and financial innovation ______.
increases; might increase the demand for some types of deposits and decrease the demand for others
