Macroeconomics Final Exam

the change in some economic variable, usually from one period to the next, expressed as a percentage

percent change

the study of "what is?"; descriptive, can be tested with data, doesn't have to be a true fact

positive analysis

a measure of the average prices of goods and services in the economy

price level

measures the average prices of goods and services in the economy; affects consumption through wealth; P increases W decrease C decreases

price level

shows the relationship between the price level and the quantity of real GDP supplied by forms in the short run; upward sloping

short-run aggregate supply curve

money allows value o be stored easily; if you do not use all your accumulated dollars to buy goods and services today, you can hold the rest to use in the future

store of value

unemployment arising from lack of skills; often results from technological process

structural unemployment

firms have to pay corporate income taxes on their profits, including profits from new buildings, equipment, and other investment goods that firms purchases; T increases I decreases; T decreases I increases

taxes

an increase in the quantity of output firms can produce using a given quantity of inputs

technological change

almost anything that raises the amount of real GDP that can be produced with a given amount of labor and capital; invention, innovation, diffusion, organization, specialization, education

technological progress

the impact of the price level on investment and consumption; P increases r increases C decreases AD decreases

the interest-rate effect

the impact of the price level on net exports; P increases exports decrease imports increase NX decreases AD decreases

the international-trade effect

impact of the price level on consumption; P increases W decreases C decreases AD decreases

the wealth effect

measured as (Y+TR-T) and is the most important determinant of consumption; when Yd increases C increases

current disposable income

what five factors does C depend on

current disposable income, household wealth, expected future income, price level, real interest rate

unemployment caused by a business cycle (recession)

cyclical unemployment

workers laid off as a result of a recession suffer a. structural unemployment b. frictional unemployment c. natural unemployment d. cyclical unemployment

cyclical unemployment

firms that borrow funds from savers and lend them to borrows

financial intermediaries

markets were financial securities (stocks and bonds) are bought and sold

financial markets

the system of financial markets and financial intermediaries through which firms acquire funds from households to make investments

financial system

changes in federal taxes and government purchases

fiscal policy

shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government; downward sloping

aggregate demand curve

jack just told his boss that he thinks his boss is an idiot. it is likely that jack will be experiencing _______ unemployment in the near future. a. frictional b. structural c. cyclical d. permanent

frictional

short-term unemployment that arises from the normal turnover in labor markets; relocating to a different region, looking for higher pay, etc

frictional unemployment

"household production" refers to a. home-based craft businesses b. the home building sector of the economy c. goods and services people produce for themselves d. the manufacturing of durable household products

goods and services people produce for themselves

spending by federal, state, and local government on goods and services

government purchases

measured as the household's assists minus its liabilities; W increases C increases

household wealth

three main sources of demand for loanable funds:

households, government, corporations

two main sources of supply of loanable funds:

houses and government

measures by how much equilibrium real GDP changes if autonomous expenditure changes by $1

multiplier

the purchase of a new Ford car by a German citizen is included in a. consumption expenditures b. investment expenditures c. government purchases d. net exports

net exports

the value of final good and services evaluated at current-year prices

nominal GDP

the stated interest rate on a loan

nominal interest rate

the study of "what ought to be?"; judgmental, prescriptive, reflects somebody's opinion rather than a fact

normative analysis

some types of G and T change automatically during a business cycle

automatic stabilizers

a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100

GDP deflator

paper money; has no value besides being generally accepted as a payment for goods and services

fiat money

macroeconomic model that focuses on the relationship between total spending and real GDP, assuming that the price level is constant

aggregate expenditure model

comes from two forms: the usual physical capital and human capital; output is an increasing function of K; if the other inputs, labor and technology, are held fixed then capital exhibits diminishing returns

capital

difference between cash revenues received by a firm and the cash spending by the firm; CF increases I increases

cash flow

a good used as money that also has a value independent of its use as money; gold and silver

commodity money

designed from scratch every time; requires changes in legislature

discretionary fiscal policy

the fed buys bonds Ms increases r decreases; Y<Y*; recession

easier expansionary monetary policy

reserves that banks hold over and above the legal requirement

excess reserves

investors feeling optimistic or pessimistic about the economy is a very important determinant of investment; optimistic I increases; pessimistic I decreases

expectations of future profitability

what are the four most important variables that determine the level of investments?

expectations of future profitability, real interest rate, taxes, cash flow

most people refer to keep their consumption fairly stable from year to year, even if their income fluctuates significantly

expected future income

it takes time for a new policy to take an effect

impact lag

it takes time to implement a new policy

implementation lag

includes all types of skilled and unskilled labor basically "lumped" together; typically measured as aggregate hours or number of individuals employed; aggregate output is an increasing function of L; if the other inputs, capital and technology, are held fixed then labor should exhibit diminishing returns

labor

reasons were don't see global convergence among developing countries:

lack of economic freedom and private property rights, police instability, low rates of saving and investment, poor public education and health

money serves as a medium of exchange when sellers are willing to accept it in exchange for goods and services

medium of exchange

the actions the federal reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives

monetary policy

represents the cost of investing because a lot of firms have to take out business loans to make investments and r is the price they have to pay for loans; r increases cost of making investment increases I decreases; r decreases I increases

real interest rate

reward to save is increases and households are likely to save more and spend less; r increases and C decreases

real interest rate

it takes time to recognize that there is a problem which calls for a change in monetary policy

recognition lag

the minimum fraction of deposits banks are required to keep as reserves by law; it is 10% of checking deposits

required reserve ratio

reserves that a bank is legally required to hold based on its checking account deposits

required reserves

deposits that a bank keeps as cash in its vault or/and on deposit with the federal reserve

reserves

the fed sells bonds Ms decreases r increases; Y>Y*; boom

tighter contractionary monetary policy

in a barter system, each good has many prices; in a monetary economy, the price of ALL goods and services are stated in terms of one good money

unit of account

the measure of how fast money is turned over in the economy

velocity

alternating periods of economic expansion and economic recession

business cycle

the additional cost or benefit associated with a small amount of extra of some action

marginal cost and benefit

the equilibrium wage in a local labor market is $10 per hour. if a minimum wage of $15 per hour is imposed, which of the following will occur? a. there will be a decrease in the quantity of labor supplied by households b. there will be an increase in the quantity of labor demanded by firms c. there will be an increase in unemployment d. all of the above

all of the above

which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita? a. many of these developing countries do not have a functioning court system that can enforce laws b. countries that are relatively poor are more likely to experience wars and revolution c. countries that are relatively poor are likely to have a lower quality of health care d. all of the above

all of the above

which of the following is a positive economic statement? a. people should not buy SUVs b. scarcity necessitates that people make trade-offs c. the government should mandate electric automobiles d. foreign workers should not be allowed to work for lower wages than the citizens of a country

scarcity necessitates that people make trade-offs

which of the following statement is true about scarcity? a. scarcity refers to the situation in which unlimited wants exceed limited resources b. scarcity is only a problem when a country has too large a population c. scarcity arises when there is a wide disparity of income distribution d. scarcity is not a problem for the wealthy

scarcity refers to the situation in which unlimited wants exceed limited resources

anyone in the WAP who is not employed an has actively looked for a job during the survey period and is waiting to be recalled to a job from which they had been laid off

unemployed

the percentage of labor force that is unemployed

unemployment rate

which of the following is a macroeconomics question? a. what factors determine the price of carrots? b. what determines the wage of auto workers? c. what determines the production of DVDs? d. what determines the inflation rate?

what determines the inflation rate

which of the following is a macroeconomics question? a. what determines the unemployment rate? b. what factors determine the price of potatoes? c. what determines the wage of airline workers? d. what determines the production of CDs?

what determines the unemployment rate?

which of the following best described the "wealth effect"? a. when the price level falls, the nominal value of household wealth falls b. when the price level falls, the nominal value of household wealth rises c. when the price level falls, the real value of household wealth falls d. when the price level falls, the real value of household wealth rises

when price level falls, the real value of household wealth rises

discouraged workers are a. workers who have consistently been looking for work for more than 4 weeks b. workers who find their current jobs unfulfilling and are considering a job change c. workers who have stopped looking for work because they believe there are no jobs for them d. worked who have a part time job but want a full time job

workers who have stopped looking for work because they believe there are no jobs for them

which of the following transactions represents the purchase of a final good? a. Starbucks purchase coffee beans b. delta buys a new European-made jetliner c. your father buys a new John Deere riding lawn mower d. apple buys processors from intel to install in their computers

your father buys a new John Deere riding lawn mower

manufactured goods that are used to produce other goods and services

capital

which of the following transactions would take place in the "underground economy"? a. John makes chain-link belts and necklaces and sells them at a local flea market for cash to avoid paying taxes b. Matt bought an iPad for $499 but decided to sell it on eBay instead of keeping it c. Paul buys 15 gallons of gasoline for $3.29 a gallon, not realizing that $1.50 per gallon of that price goes to the government as tax revenue d. Elizabeth tells her mother she's going to work but really goes to see a movie

John makes chain-link belts and necklaces and sells them at a local flea market for cash to avoid paying taxes

which of the following is an example of a worker experiencing cyclical unemployment? a. a lifeguard who was hired during the summer season is laid off after summer is over b. a freightliner employee that got laid off because of the recession of 2007-2009 c. a worker who quits his job because he does not get along with his boss d. an assembly line worker who loses his job because of automation e. a worker who changes jobs to move closer to her family

a freightliner employee that got laid off because of the recession of 2007-2009

which of the following policies would reduce structural unemployment? a. building an online job database that helps workers find jobs b. implementing an unemployment insurance policy c. an increase in the minimum wage d. a job retraining program

a job retraining program

an example of a final good would be a. a soy latte sold by Starbucks to a student b. the whipped cream sold to Starbucks c. the coffee beans sold to Starbucks d. the soy milk sold to Starbucks

a soy latte sold by Starbucks to a student

which of the following is an example of a worker experiencing frictional unemployment? a. a worker who changes jobs to move closer to her family b. an assembly line worker who loses his job because of automation c. a freightliner employee that got laid off because of the recession of 2007-2009 d. a lifeguard who was hired during the summer season is laid off after summer is over

a worker who changes jobs to move closer to her family

consider the following statements: a. car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area b. banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment c. firms produce more of a particular DVD when its selling price rises which of the above statements demonstrates that economic agents respond to incentives? a. a only b. b only c. c only d. a and b e. a, b, and c

a, b, and c

which of the following is an example of a worker experiencing structural unemployment? a. a freightliner employee that got laid off because of the recession of 2007-2209 b. a lifeguard who was hired during the summer season is laid off after summer is over c. a worker who quits his job because he does not get along with his boss d. an assembly line worker who loses his job because of automation e. a worker who changes jobs to move closer to her family

an assembly line worker who loses his job because of automation

which of the following will raise consumer expenditures? a. an increase in interest rates b. an increase in the price level c. an increase in expected future income d. a general decline in housing prices

an increase in expected future income

the "international trade" effect states that a. an increase in the price level will raise exports b. an increase in the price level will raise net exports c. an increase in price level will lower imports d. an increase in price level will lower net exports

an increase in price level will lower net exports

consider the following statements: a. car owners purchase more gasoline from a gas station that sells gasoline at a higher price than other rival gas stations in the area b. banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment c. firms produce more of a particular DVD when its selling price falls which of the above statements demonstrates that economic agents respond to incentives? a. a only b. b only c. c only d. a and b e. a, b, and c

b only

a fresh tomato is an example of a a. barter money b. representative money c. fiat money d. commodity money

barter money

which of the following policies would reduce frictional unemployment? a. building an online job database that helps workers find jobs b. implementing an unemployment insurance policy c. an increase in the minimum wage d. a job retraining program

building an online job database that helps workers find jobs

investment spending will increase when a. firms become more pessimistic about earning future profits b. the corporate income tax increases c. business cash flow increases d. the interest rate rises

business cash flow increases

where governments decide what to product, how to produce it, and who received the goods and services

centrally planned economies

the substitution bias in the consumer price index refers to the idea that consumers ______ the quantity of products they buy in response to price, and the CPI does not reflect this and ______ the cost of the market basket. a. do not change; underestimates b. do not change; overestimates c. change; underestimates d. change; overestimates

change; overestimates

a fresh peach is an example of a a. fiat money b. representative money c. commodity money d. barter money

commodity money

a pack of cigarettes is an example of a. barter money b. representative money c. fiat money d. commodity money

commodity money

an average of the prices of the goods and services purchased by a typical urban family of four

consumer price index

spending by households on goods and services, not including spending on new houses, including domestic and imported goods

consumption

what is the largest component of aggregate expenditure? a. consumption expenditures b. planned investment expenditures c. government expenditures d. net exports expenditures

consumption expenditures

the largest component of spending in GDP is a. government spending b. consumption spending c. investment spending d. net exports spending

consumption spending

if you have trouble finding a job because of a recession, we would say that you are a. frictionally unemployed b. seasonally unemployed c. cyclically unemployed d. structurally unemployed

cyclically unemployed

a situation in which unlimited wants exceed the limited resources viable to fulfill those wants

scarcity

the five most important variables that determine the level of consumption are a. government purchases, interest rates, income, taxes, and transfers b. disposable income, wealth, expected future income, price level, and interest rate c. government purchases, saving account balances, wealth, interest rates, portfolio balances d. wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances

disposable income, wealth, expected future income, price level, and interest rate

refers to a phase of a business cycle when GDP is increasing

economic growth

anyone in the WAP who: did any work at all as a paid employee, worked in their own business or profession or on their own farm, worked 15 hours or more as unpaid workers in a family-operated enterprise, did not work but had jobs or businesses form which they were temporarily absent due to illness, vacation, labor dispute, etc

employed

rising real GDP, from a trough to the next peak

expansion

marla is an architect who is designing a home for chuck. chuck is paying marla $150 our hour to design his new home. when chuck and marla get married, marla continues to work on designing the home, but she no longer charges chuck for her work. as a result GDP _______ because ______. a. rises; marla becomes more productive once she's married b. falls; marla's work becomes less valuable once she's married c. falls; marla's work takes place in the underground economy once she's married d. falls; marla's architectural design services are no longer bought by chuck once they're married

falls; Marla's architectural design services are no longer bought by chuck once they're married

which of the following is a positive economic statement? a. the government should revamp the health care system b. the standard of living in the US should be higher c. if the prices of iPhones falls, a larger quantity of iPhones will be purchased d. the US government should not have bailed out US auto manufacturers

if the prices of iPhones falls, a larger quantity of iPhones will be purchased

all of the following policies are ways for a country to promote long-run economic growth except a. imposing stricter regulations to limit foreign direct investment b. undergoing political reform to decrease corruption c. increasing vaccinations against infectious diseases d. enacting stronger laws to protect property rights

imposing stricter regulations to limit foreign direct investment

increasing the growth rate of GDP per capita and sustaining this growth rate in an economy can a. lower life expectancy b. increase standards of living c. increase the level of poverty d. increase infant mortality

increase standards of living

the percentage increase in the aggregate price level from one year to the next

inflation rate

which of the following increases labor productivity? a. a decline in the health of the population b. an increase in the aggregate hours of work c. decreases in the availability of computers and factory buildings d. inventions of new machinery, equipment, or software

inventions of new machinery, equipment, or software

if aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium? a. inventories will rise, and GDP and employment will decline b. inventories will rise, and GDP and employment will rise c. inventories will decline, and GDP and employment will rise d. inventories will decline, and GDP and employment will decline

inventories will rise, and GDP and employment will decline

acquisition of capital by firms

investment

spending by firms on new factories, office buildings, machinery, and additions to inventories, AND spending by households on new houses

investment

the purchase of a new house is included in a. consumption expenditures b. investment expenditures c. government purchases d. net exports

investment expenditures

if firms are more optimistic that future profits will rise and remain strong for the next few years then a. investment spending will remain unaffected b. investment spending will rise and then fall c. investment spending will fall d. investment spending will rise

investment spending will rise

components of GDP

labor income, capital income, indirect business taxes, net income of foreigners, depreciation

the quantity of goods and services that can be produced by one worker or by one hour of work

labor productivity

when AE=Y, a. saving equals zero b. net exports equal zero c. the federal budget is balanced d. macroeconomic equilibrium

macroeconomic equilibrium

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

macroeconomics

which of the following is likely to increase measured GDP? a. a greater number of women decide to stay at home and provide day care for their children under age 5 b. tax rates increase and more people attempt to underreport their income for tax purposes c. more people decide to do their own lawn maintenance and give up using a professional service d. marijuana becomes legal to grow and sell in all fifty states

marijuana becomes legal to grow and sell in all fifty states

where the decisions of households and firms determine what is produced, how it is produced and who receives the goods and services

market economies

which of the following questions or statements regarding medical school is normative? a. medical students who enter specialized fields make a larger contribution to society than do student who enter primary care b. what role does tuition play in a student's decision about whether to attend medical school? c. how do changes in expected future incomes affect the decisions of medical students about which specialty to choose? d. have tuition increases had a large effect or a small effect on the number of applications to medical school?

medical students who enter specialized fields make a larger contribution to society than do student who enter primary care

the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

microeconomics

Deshawn's detailing is a service that details cars at the customer's homes or places of work. Deshawn's cost for a basic package is $40, and he charges $75 for this service. for a total price of $9, deshawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. should deshawn continue to offer the engine detailing service? a. yes, he still makes a profit by selling the engine detailing service with the basic detailing package b. yes, but only if he raises the price of the basic detailing package c. no, his marginal benefit is less than his marginal cost d. more information is needed for deshawn to make this decision

no, his marginal benefit is less than his marginal cost

if you withdraw $4,000 from your checking account at Auburn Bank and buy a 6-month CD with it (a type of the deposit), then M1 will _____ and M2 will ____. a. decrease; decrease b. decrease; increase c. not change; increase d. decrease; not change e. not change; not change

not change; increase

if you withdraw $500 from your checking account at Auburn Bank and hold it as cash, then M1 will _____ and M2 will _______. a. decrease; decrease b. decrease; increase c. increase; decrease d. not change; increase e. not change; not change

not change; not change

a full-time student who is not working is categorized as a. employed b. unemployed c. frictionally unemployed d. a discouraged worker e. not in the labor force

not in the labor force

the increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but _____ quality increases. this causes the CPI to ______ the cost of the market basket. a. not; understate b. also; understate c. not; overstate d. also; overstate

not; overstate

the highest-valued alternative given up in order to engage in some activity

opportunity cost

the highest point in real GDP at the end of an expansion and right before a contraction

peak

enforcing property rights in an economy will a. raise the level of investment b. cause the market system to work less efficiently c. decrease the level of foreign portfolio investment d. encourage corruption and expand the underground economy

raise the level of investment

using all available information to achieve your goals

rational

the value of final goods and services evaluated at base-year prices

real GDP

the nominal interest rate minus the inflation are

real interest rate

falling RGDP, from a peak to the next trough

recession

disease, poor nutrition, and substandard health care in developing nations can reduce growth in an economy by a. reducing human capital b. increasing labor productivity c. increasing technological change d. reducing physical capital

reducing human capital

suppose you want to open a coffee shop in your home town. you consider taking out a small business loan from a local bank. which of the scenarios below would you prefer as a borrower? scenario 1: nominal interest rate is 10%, inflation is 5% scenario 2: nominal interest rate is 15%, inflation is 12% scenario 3: nominal interest rate is 7%, inflation is 3% scenario 4: nominal interest rate is 9%, real interest rate is 6% a. scenario 1 b. scenario 2 c. scenario 3 d. scenario 4

scenario 2

what is human capital? a. labor productivity b. buildings, equipment, and machinery owned by firms c. buildings, equipment, and machinery owned by individuals rather than firms d. the accumulated knowledge and skills that workers acquire from education, training, and their life experiences

the accumulated knowledge and skills that workers acquire from education, training, and their life experiences

by definition, economics is the study of a. supply and demand b. how to make money in a stock market c. how to make money in a market economy d. the choices people make to attain their goals, given their scarce resources

the choices people make to attain their goals, given their scarce resources

which of the following is counted in GDP? a. the value of leisure b. the value of do-it-yourself work c. the value of goods and services produced in the underground economy d. the cost of a speed boat purchased by drug smugglers

the cost of a speed boat purchased by drug smugglers

who, in a centrally planned (or command-and-control) economy, decides what goods and services will be produced with the scarce resources available in that economy? a. the government, consumers and producers b. consumers and producers c. consumers d. producers e. the government

the government

who, in a mixed economy, decided what goods and services will be produced with the scarce resources available in that economy? a. the government b. consumers c. producers d. consumers and producers e. the government, consumers, and producers

the government, consumers, and producers

US net export spending rises when a. the growth rate of US GDP is slower than the growth rate of GDP in other countries b. tje price level in the US rises relative to the price level in other countries c. the inflation rate is higher in the US relative to other countries d. the value of the US dollar increases relative to other currencies

the growth rate of US GDP is slower than the growth rate of GDP in other countries

consider two countries, alpha and beta. in alpha, real GDP per capita is $6,000. in beta, real GDP per capita is $9,000. based on the theory of global convergence, what would you predict about the growth rates in real GDP per capita across these two countries? a. the growth rate of real GDP per capita will be lower in alpha than it is in beta b. the growth rate of real GDP per capita will be higher in alpha than it is in beta c. the growth rate of real GDP in alpha and beta will be the same d. the economic growth model makes no predictions regarding differences in growth rates of real GDP per capita across the two countries

the growth rate of real GDP per capita will be higher in alpha than it is in beta

consider two countries, alpha and beta. in alpha, real GDP per capita is $9,000. in beta, real GDP per capita is $6,000. based on the theory of global convergences, what would you predict about the growth rates in real GDP per capita across these two countries? a. the growth rate of real GDP per capita in alpha and beta will be the same b. the growth rate of real GDP per capita will be higher in alpha than it is in beta c. the growth rate of real GDP per capita will be lower in alpha than it is in beta d. the economic growth model makes no predictions regarding differences in growth rates of real GDP per capita across the two countries

the growth rate of real GDP per capita will be lower in alpha than it is in beta

an increase in the production of one good requires the reduction in the production of some other good

trade-off

the lowest point in the real GDP at the end of a contraction or recession

trough