Macroeconomics Final

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

m = 1/R.

The transactions demand for money is most closely related to money functioning as a:

medium of exchange.

In contrast to investment, consumption is:

relatively stable.

Dissaving means:

that households are spending more than their current incomes

Which of the following economic regions has experienced the most growth in real GDP per capita since 1820?

US

A commercial bank's reserves are:

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

Answer the question on the basis of the following information about a hypothetical economy: Full time employed -80 Part time employed -25 Unemployed -15 Discouraged workers -5 Members of Underground Eco. -6 Consumer Price Index -110 Refer to the given information. If the members of the underground economy are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by about:

15+6+5= 26 24% 15+5 20= 20 18% 6 percentage points.

A bank that has liabilities of $150 billion and a net worth of $20 billion must have:

150 + 20= 170 assets

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

179.9 - 177.1 = 2.8 (Okun's Law)/2 = 1.6 1.6 percent.

Use the list below to answer the following question: 1. Improvements in technology. 2. Increases in the supply (stock) of capital goods. 3. Purchases of expanding output. 4. Obtaining the optimal combination of goods, each at least-cost production. 5. Increases in the quantity and quality of natural resources. 6. Increases in the quantity and quality of human resources. Refer to the list. As distinct from the supply factors and demand factor of economic growth, the efficiency factor(s) of economic growth is (are):

4 only.

Inflation affects:

both the level and the distribution of income.

The MPC can be defined as that fraction of a:

change in income that is spent.

If the reserve ratio is 100 percent, the value of the monetary multiplier is:

m = 1/1.00 = 1

Investment and saving are, respectively:

injections and leakages

At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be:

$38 billion.

Answer the question on the basis of the following table for a commercial bank or thrift: Legal Reserve Ratio Checkable D Actual Reserves 10 40,000 10,000 20 40,000 10,000 25 40,000 10,000 30 40,000 10,000 Refer to the table. When the legal reserve ratio is 30 percent, the monetary multiplier is:

1/.30 = 3.33

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

1000 = .20n 5,0000

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. The per-unit cost of production in this economy is:

2 capital $10 5 raw $4 8 labor $3 input cost/total output 2(10)+5(4)+8(3)/640 20+20+24/640 64/640 1/10=$.10

What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?

A rise in the real GDP.

If the MPC is .50 and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is:

GDP = Consumption + Investment Investment = GDP - Consumption Investment = 40 - (.50x40) Investment = 20

In the United States, monetary policy is the responsibility of the:

Board of Governors of the Federal Reserve System.

Which of the following is correct? 1.Both the granting and repaying of bank loans expand the aggregate money supply. 2.Granting and repaying bank loans do not affect the money supply. 3.Granting a bank loan destroys money; repaying a bank loan creates money. 4.Granting a bank loan creates money; repaying a bank loan destroys money.

Granting a bank loan creates money; repaying a bank loan destroys money.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

If MPC is .5 then MPS is .5 20/.5 = 40 billion to the Left (SINCE IT DECREASES)

If the saving schedule is a straight line, the:

MPS must be constant.

The total demand for money will shift to the left as a result of:

a decline in nominal GDP.

Taxes represent

a leakage of purchasing power, like saving.

Federal Reserve Notes in circulation are:

a liability as viewed by the Federal Reserve Banks.

Money functions as:

a store of value. a unit of account. a medium of exchange.

If net exports are positive:

aggregate expenditures are greater at each level of GDP than when net exports are zero or negative.

Reserves must be deposited in the Federal Reserve Banks by:

all depository institutions, that is, all commercial banks and thrift institutions.

In a fractional reserve banking system:

banks can create money through the lending process.

In the United States, the money supply (M1) is comprised of:

coins, paper currency, and checkable deposits.

If the MPC is .8 and disposable income is $200, then:

consumption and saving cannot be determined from the information given

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the:

cyclical unemployment rate is 4 percent

The size of the multiplier associated with an initial increase in spending will be:

diminished if inflation occurs.

In the aggregate expenditures model, it is assumed that investment:

does not change when real GDP changes

If at some level of GDP the economy is experiencing an unintended decrease in inventories:

domestic output will increase.

The demand for federal funds is

downsloping because higher interest rates discourage commercial banks from borrowing federal funds, but lower rates will encourage borrowing.

The aggregate demand curve is:

downsloping because of the interest-rate, real-balances, and foreign purchases effects

The labor force includes:

employed workers and persons who are officially unemployed.

Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n):

expansionary fiscal policy.

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by:

horizontally adding the transactions and the asset demand for money.

A private closed economy includes:

households and businesses, but not government or international trade.

An unexpected increase in total spending will cause an increase in GDP

if prices are sticky

Given a fixed upsloping AS curve, a rightward shift of the AD curve will:

increase both the price level and real output.

If a nation imposes tariffs and quotas on foreign products, the immediate effect will be to:

increase domestic output and employment.

If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will:

increase the interest rate and reduce the price level, assuming it is flexible downward.

The achievement of full employment through time will:

increase the realized rate of economic growth.

Contractionary fiscal policy is so named because it:

is aimed at reducing aggregate demand and thus achieving price stability.

Expansionary fiscal policy is so named because it:

is designed to expand real GDP.

The economy's long-run aggregate supply curve:

is vertical.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. The level of productivity is:

out/in = 20/10 = 2

A recession is defined as a period in which:

real domestic output falls.

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

In the United States, business cycles have occurred against a backdrop of a long-run trend of:

rising real GDP.

At the point where the consumption schedule intersects the 45-degree line:

saving is zero.

Okun's law:

shows the relationship between the unemployment rate and the size of the negative GDP gap.

The investment demand curve will shift to the right as a result of:

technological progress

During a severe recession, we would expect output to fall the most in

the construction industry

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result:

the official unemployment rate will remain unchanged.

Recall the formula that states that $V = 1/P, where V is the value of the dollar and P is the price level. If the price level falls from 1 to 0.75, what will happen to the value of the dollar?

v=1/1 = 1 v=1/.75 =1.33 It will rise by a third (33.3 percent).

The asset demand for money:

varies inversely with the rate of interest.

Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. Refer to the given information. If the price of this bond increases to $1,250, the interest rate will:

100/1000 = .10 100/1250 = .08 fall to 8 percent.

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, it real GDP per capita will:

100/200 =.5 106/212=.5 No change

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is:

200-160 = 40 difference in consumption 40/200 total income = .2 mpc 1/.2 = 5

If the price index rises from 200 to 250, the purchasing power value of the dollar:

250 - 200 = 50 50 is what percentage of original 250? .20 will fall by 20 percent.

If nominal GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be:

600/3 = $200 billion

Suppose the nominal annual interest rate on a two-year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is:

8-5=3% real rate of interest

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Unemployed - 7 Total Population -145 Employed -95 Discouraged Workers -3 Refer to the given information. If the natural rate of unemployment in Scoob is 5 percent, then:

Cyclical unemployment is about 2 percent. (Disgruntled+Unemployed over total pop minus natural rate x 100) 3+7=10 10/145 - .05= .02 2%

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. Refer to the information. The $40 billion deposit of new currency will support total checkable deposits of:

D= E x m E= $40 x .80 = $32 m= 1/.20 = 5 D = 32 x 5 = $160 + orginal 40 = 200 $200 billion.

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?

Excess Reserve 4,000 = .75n Actual reserve $24,000

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

If MPC is .8 then MPS is .2 Savings is investment. $10 million (investment/savings)/ .2 = $50 million to the Right (SINCE IT INCREASES)

The aggregate supply curve:

shows the various amounts of real output that businesses will produce at each price level.

To test your understanding, compute the bank's excess reserves from balance sheet 4, assuming that the reserve ratio is (1) 10 percent, (2) percent, and (3) 50 percent. Assets Liability Cash 0 Check-able Deposits Reserves 110,000 100,000 Property 250,00 Stock Shares 250,000

Reserve - (Liability x Reserve Ratio) = Excess 1. 110,000 - ( 100,000liability x .10reserveratio) 110,000-10,000=100,000 2. 110,000 - (100,000 x .02) 110,000 - 2,000 = 108,000 3. 110,000 - (100,000 x .50) 110,000 - 5,000= 105,000

Innovations such as the microchip and the Internet lead to business cycle variations because:

significant innovations occur irregularly and unexpectedly.

The 45-degree line on a graph relating consumption and income shows:

all the points at which consumption and income are equal.

The determinants of aggregate demand:

explain shifts in the aggregate demand curve.

Most modern banking systems are based on:

fractional reserves.

Part-time workers who want full-time work are counted as:

fully employed and therefore the official unemployment rate may understate the level of unemployment.

The size of the MPC is assumed to be:

greater than zero but less than one.

Answer the question on the basis of the following information about the relationship between input quantities and real domestic output in a hypothetical economy: INPUT QUALITY REAL DOMESTIC OUTPUT 100 200 150 300 200 400 Refer to the table. Suppose that the price of each input increased from $5 to $8. The per-unit cost of production in the economy would:

input cost/total output 100(5)/200 vs 100(8)/200 500/200 vs 800/200 500 + 500n=800 (For percentage) 500n=300 300/500 = .6 Rise by 60 percent and the aggregate supply curve would shift to the left.

The most important determinant of consumption and saving is the:

level of income

The foreign purchases effect:

moves the economy along a fixed aggregate demand curve.

The APC can be defined as the fraction of a:

specific level of total income that is consumed.