macroeconomics final (ch 25, 30, 31, 34, 35)
The standard deduction for a single person is $12,200. Based on this table, if your total income is $84,200, what is the amount of tax you will pay on your taxable income?
$11,699 $84200 - $12200 = $72000 Taxable income = $72000 $9700*0.10 = $970 ($39475 - $9700) = $29775*0.12 = $3573 ($72000 - $39475) = $32525*0.22 = $7155.5 $970 + $3573 + $7155.5 = $11699
Payroll taxes are 6.2%, and Medicare taxes are 2.9% If your employer owes you $665, approximately how much will you get after these deductions?
$604.49 $665 - ((0.062+0.029)*$665) $665 - (0.091*$665) $665 - $60.5515 $604.49
Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $665. How much will your work cost your employer?
$725.52 $665 + ((0.062+0.029)*$665) $665 + (0.091*$665) $665 + $60.52 $725.52
In your current job, you earn $41,000. You take the standard deduction of $12,200. You have an offer of a new job working for a different employer. Your salary would go up by $6500. How much extra will you owe in federal income taxes if you take the new job?
$780 $6500*0.12 = $780
Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer?
$927.35 $850 + (0.091*$850) $850 + $77.35 = $927.35
The figure shows inflation from 2009 to 2018 for countries in the Organization for Economic Cooperation and Development (OECD). The country with the second-highest inflation rate was:
Russia
With a progressive tax, those with ________ income tend to pay a __________.
more; higher share of their income in taxes.
In the IS-MP analysis in the Fed model, a fall in the interest rate causes a:
movement to the right along the IS curve
An increase in the price of ____ is most likely to create supply-push inflation throughout the economy.
oil
Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the:
output gap
The debt-to-GDP ratio in 2021 was about 100%. This means
the total government debt owed was equal to it's total income in 2021
Business owners determine how much to raise their prices based largely on:
their inflation expectations
Consider the Phillips curve shown here. In region B:
there is excess demand
Consider the Phillips curve shown here. In region A:
there is insufficient demand (output is below potential output; inflation falls below expected inflation)
Fiscal policy works best when it is:
timely, targeted, and temporary.
What is excess demand?
too many buyers for too few goods
Which of the following did the New Deal create? -quotas -tariffs - the stock exchange - unemployment benefits
unemployment benefits
Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the
unexpected inflation from the Phillips curve.
The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:
unexpected inflation of 1%
which of the following is consumption spending
you eat at a fancy restaurant for valentine's day
Inflation occurs when actual output is ____ potential output.
more than
Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Next year, you expect GDP to be equal to potential GDP. What is your forecast for unexpected inflation?
0% actual output = potential, so inflation is 0%
Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate inflation is ____ less than expected.
0.25% (subtract) Inflation = expected inflation + unexpected inflation 1.75% = 2% + ? = -0.25% 0.25% LESS than expected
The table shows the salary of a worker in India. The marginal propensity to consume (MPC) is
0.53 MPC = change in consumption divided by change in income MPC = (55650 - 53000) / (105000 - 100000) = 0.53
if a $100 million increase in total income leads to a $62 million increase in consumption, the slope of the consumption function is
0.62 (62/100)
Total consumption is $1,800 when income is $2,000, and total consumption increases to $2,600 when income is $3,000. What is the marginal propensity to consume?
0.8 MPC = change in consumption divided by change in income MPC = $2600 - $1800 = $800 $3000 - $2000 = $1000 $800 / $1000 = 0.8
If expected inflation is 2%, and actual inflation is 2.8%, then unexpected inflation is:
0.8% (subtract) Inflation = expected inflation + unexpected inflation 2.8% = 2% + ? = 0.8%
Consider the following data. What is the marginal propensity to consume?
0.9 MPC = change in consumption divided by change in income Look at changes in ADJACENT ROWS MPC = ($274000 - $184000) / ($300000 - $200000) = 0.9
the table shows the salary of a construction worker in Japan. the level of saving in 2017 is
18,000 euros Savings = real income - real consumption Savings = 40000 - 22000 = 18000
What was the Fed's inflation target in 2019?
2%
Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Suppose for next year, you expect GDP to be equal to potential GDP. Current inflation expectations are at 2%. How much does your salary have to change, in nominal terms, in order to maintain your purchasing power at the current level?
2% When inflation goes up 2%, your salary must go up 2% to keep your same purchasing power
the table shows the salary of a worker in Japan. the level of saving in 2015 is
2.2 million Savings = real income - real consumption Savings = 5.5 million - 3.3 million = 2.2 million
Take a look at the IS-MP-PC model shown here. The equilibrium real interest rate is:
3%
The table shows the salary of a worker in India. The level of saving in 2017 is
50,290 rupees Savings = real income - real consumption Savings = 107000 - 56710 = 50290
If Mario is a consumption smoother and has just won a prize of $12,000, we can expect Mario to exhibit
A small change in consumption
If there is a temporary rise in income, a consumption smoother will exhibit _____ in consumption, and a hand to mouth consumer will exhibit ______ in consumption
A small increase; a large increase
Credit constraints limit the
Amount of money that people can borrow
Why does an anticipated change in income lead to no change in consumption for a consumption smoother
Consumption is based on permanent income, which is already factored into anticipated future changes in income
The use of automated harvesting machines greatly increased productivity in farming. How does this affect the Phillips curve for an economy where agriculture is a significant part of GDP?
Down SHIFT of Phillips curve Old (blue) arrow points down to new (purple)
Which figure shows the correct effect on the Phillips curve when there are falling production costs?
Down SHIFT of Phillips curve old (blue) shifts down to new (purple); arrow pointing down
Which is a legitimate concern about having too much government debt?
Excess government borrowing may crowd out spending on more productive projects or investments.
The news of an impending recession in the economy will lead to a
Fall in consumption Rise in precautionary saving Rise in national saving
What effect does a booming real estate market in China have on the consumption function in China
Figure A - Consumption increases; SHIFTS UP
Suppose falling interest rates in Australia discourage saving. What effect does this have on the consumption function in Australia
Figure A - consumption SHIFTS UP Lower interest rates = boost consumption
Which of the following graphs shows the correct effect on the function when consumer wealth increases
Figure B - Consumption SHIFTS UP greater wealth = higher consumption
Which of the following graphs shows the correct effect on consumption function when consumer wealth decreases
Figure C - Consumption SHIFTS DOWN Lower wealth = lower consumption
Which of the following is a reason to worry about government debt? -Future generations can help repay the debt. - The government never really needs to repay the debt. - High and rising debt slows economic growth. - Most of the debt is domestic debt.
High and rising debt slows economic growth.
Why does inflation tend to occur when the economy is growing rapidly?
High levels of demand lead to higher prices
In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the:
IS curve to the left
The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the:
IS curve to the right.
The Fed model combines the ______ curve, the __________ curve, and the _________ curve to link interest rates, the output gap, and inflation.
IS;MP;Phillips
In the IS-MP analysis curve in the Fed model, a decrease in the risk-free rate shifts the :
MP curve down
The rational rule of consumption is to consume more today if the
Marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future
The benefit of an extra dollar of consumption
Marginal benefit of consumption
Why don't most tax expenditures help much if your federal tax bill is zero?
Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill.
Which of the following graphs correctly represents the effect of increased consumer spending on the IS curve?
Real interest rate vertical axis /output gap horizontal axis INCREASED SPENDING
Government spending should be counter cyclical because the spending can boost GDP, but also because
The opportunity cost of resources is lower
Which of the following graphs correctly represents the effect on the Phillips curve in Ethiopia if the Ethiopian birr appreciates?
Unexpected inflation vertical/output gap horizontal FALLING COSTS - line shifts downward
Which figure shows the correct effect on the Phillips curve when the domestic currency depreciates?
Up SHIFT of Phillips curve Old (blue) arrow points up to new (green)
A debt crisis occurs when:
a government cannot repay its loans.
If there is ______ rise in income, there will be an intermediate increase in total consumption in the economy
a temporary
The figure shows inflation expectations and actual inflation for U.S. consumers over time. Which of the following statements correctly describes the relationship between these rates?
actual inflation tends to follow inflation expectations
When there are few jobs available and unemployment is high in an economy, the amount of funding spent on employment claims rises. This is an example of:
an automatic stabilizer
A rise in nominal wages represents:
an increase in production costs (costs more to pay employees more wages)
You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy?
an unchanged real interest rate, an unchanged output gap, and unexpected inflation.
A financial shock is any change in
borrowing conditions that changes the real interest rate at which people can borrow.
The ___ refers to times when the federal government spends more than it's revenue in a given year, whereas the ___ is the accumulation of everything owed by the government plus interest.
budget deficit; national debt
Which of the following services are provided by local government? - military defense - bus services - medicare - pell grants
bus services
When a spending shock occurs, the IS curve shifts by the
change in spending times the multiplier
Suppose rubber prices rise in international markets. For countries that import rubber, this scenario would lead to:
cost-push inflation
In the IS-MP analysis in the Fed Model, the MP curve shows you the
current real interest rate
The Affordable Care Act is an example of:
discretionary spending.
When unexpected inflation is zero, the corresponding unemployment rate is the _____ unemployment rate.
equilibrium
Demand-pull inflation is inflation resulting from:
excess demand
In order to boost output, the federal government engages in _____ fiscal policy, which _______ government spending and _______ taxes.
expansionary; raises; lowers
When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by a ___________ shock.
financial
A budget deficit occurs when:
government spending exceeds government revenue
If the growth rate of GDP is ___ than the real interest rate than our ability to pay back debts would ____.
higher; rise
On which of the following is there a tax incentive in the United States? i) health insurance purchased through employers ii) employer contributions for life insurance iii) rental value on owner-occupied housing iv) your mortgage
i, iii, iv
When using the Fed model, the first step is to
identify the shock and shift the curve.
In the long run, inflation is determined by:
inflation expectations
Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate there is:
insufficient demand -0.25% negative output gap; inflation falls below expected inflation
If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to:
lower nominal wages by 1% No inflation, so must LOWER nominal wages
If managers have an expectation of ongoing inflation, then it is likely that:
prices will rise
a supply shock is any change in
production costs that leads suppliers to change the prices they charge at any given level of output.
If the US Dollar appreciates, which of the following graphs correctly represents the effect on the IS curve?
real interest rate vertical/output gap horizontal decreased spending - line shifts to left
If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then:
real wages have fallen by 2.5% Inflation = 4% Raise = 1.5% Real wages = 4% - 1.5% = 2.5%
If a spending shock increase aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift:
right by $87.5 billion.
The Philippines government provides retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits. These are examples of:
social insurance
If you see a newspaper headline that says "Steel prices rise sharply," this is an example of __________ shock.
supply
Tariffs on inputs lead to a _______ shock.
supply
Insufficient demand leads to a:
surplus and falling prices
Fiscal policy is best implemented when it is
targeted, timely, temporary
Consider the following graph. One of the reasons that government spending rose during the 2007 to 2009 period was the introduction of:
the Affordable Care Act
The government's debt is
the accumulation of all the deficits
The U.S national debt is projected to rise in the coming years because
the government has obligations to the aging portion of the population for retirement and healthcare
Suppose a high-income person, a middle-income person, and a low-income person all purchase identical houses that are financed by similar mortgages. Who spends the most on tax-preferred goods?
the high-income person
Suppose a high-income person, a middle-income person, and a low-income person purchase identical houses that are financed by similar mortgages. Who gets the largest tax benefit?
the high-income person
Fiscal policy is increased in its effectiveness through:
the multiplier effect.
Consider the Phillips curve shown here. In region B:
the output gap is positive