Macroeconomics Final Exam

When we say the cost of living has gone up, we mean that, looking broadly over a range of goods and services:

a dollar buys less today than it used to buy

Financial market:

a market in which people trade future claims on funds or goods

Structural unemployment is:

a mismatch between the skills workers can offer and the skills that are in demand

A change in a non price factor of demand will cause:

a shift of the demand curve

What would shift the money demand curve to the left?

a technological advance

Planned investment is the:

amount that firms decide to allocate to new capital resources and inventory accumulation

Investment, as a part of GDP, includes:

any goods that are bought by firms who plan to use those purchases to produce other goods and services in the future, rather then consuming them

Open market operations:

are sales or purchases of government securities, by the Fed to or from banks on the open market

Taxes and government spending that affect fiscal policy without specific action from policymakers are called:

automatic stabilizers

If the nominal GDP were to increase, but the real GDP were to increase by less from one year to the next, we could conclude:

both prices and output went up

The growth rate of real GDP per capita is best captured by subtracting the percentage changes in:

both prices and population from the nominal GDP growth rate

One way the government can boot the economy out of a recession is:

by increasing government spending

The normal level of unemployment that persists in an economy in the long run is:

called the natural rate of unemployment

Central banks can only tackle two out of three:

capital flows, exchange rates, domestic monetary policy

The definition of M2 includes:

cash, checking accounts, savings accounts, and other financial instruments where money is locked away for a specified period of time

In the U.S. the working-age population refers to the:

civilian, non institutional population aged 16 and over

Using the expenditure method to estimate GDP, we would include:

consumption, investment, government purchases, and net exports

The four components of aggregate expenditure (AE) are:

consumption, investment, government, and net export spending

The law of supply describes the:

direct relationship between price and quantity supplied

According to the circular flow model, expenditures by one person translate:

directly into income for someone else

Liquidity refers to how:

easy an asset is to convert immediately to cash without losing value

The of macroeconomics studies __________ and microeconomics studies _________

economic aggregates; individual markets

Net exports are defined to be:

exports - imports

Lower interest rates motivate:

firms to invest more in new factories and working capital

Fiscal policy is:

government decisions about the level of taxation and public spending

When a producer has the ability to produce a good or service at a lower opportunity cost than others, economists say the producer:

has a comparative advantage at producing that good

The goal of contractionary monetary policy is to:

increase interest rates to slow down the economy

What would be a likely cause of aggregate demand to shift to the right?

increased firm confidence

Transaction costs can be defined as the costs:

incurred by buyer and seller in agreeing to and executing a sale of goods or services

Bob just got laid off and now has no income. We can assume that his demand for all:

inferior goods will decrease

When we compare PAE and actual output (Y) if PAE is greater than Y we expect that:

inventories to decrease and eventually production will increase

The law of demand describes the:

inverse relationship between price and quantity demanded

A market basket:

is a tool devised to track how changing prices affect consumers

If a country possesses the absolute advantage in the production of one good:

it can produce more of that good given that same resources

If society were to experience an increase in its available resources:

its production possibilities frontier would shift out

Banks create money in the economy by:

loaning out part of each deposit, which will be re deposited by someone else

Balance of trade

measures the flow of the value of goods and is calculated as: exports - imports

The consumer price index:

measures the increase in the cost of the market basket relative to the cost in a given base year

One of the functions of money is to serve as a:

medium of exchange

Fiat money is:

money created by rule of law

The wealth effect explains the:

negative relationship that exists between consumer spending and overall price level

Consumption spending is:

negatively related to the overall price level

Default

occurs when a borrower fails to pay back a loan according to the loan terms

Productivity is generally measured as:

output per worker

What three macroeconomic variables together best describe the health of the economy?

output, prices, and employment

The aggregate supply curve shows the relationship between the:

overall price level in the economy and total production by firms

When we say investment in macroeconomics we are talking about:

physical capital

The convergence theory states that:

poorer countries will grow faster than rich ones

Some non price determinants of supply are:

prices of related goods, technology, prices of inputs, expectations, and the number of sellers

The total amount of money that a government owes at a point in time is called:

public debt

The amount of a particular good that buyers in a market will purchase at a given price during a specified period is called:

quantity period is called

Which is NOT a primary determinant of consumption spending?

rate of return on capital

What could be a direct cause of investment spending decreasing?

real interest rates increase

Averse selection

refers to a state that occurs when buyers and sellers have different information

Net capital flow

refers to the net flow of funds invested outside of a country

Moral hazard

refers to the tendency for people to behave in a riskier way when they do not face the full consequences of their actions

Financial system

represents the markets where financial products are traded

Scarcity

resources are limited, doesn't allow for the most effective option

What is NOT an example of a transfer payment?

sales tax

Balance of payments

shows that NX=NCO

Human capital refers to the:

skills, experience, and natural talent that determine the productivity of workers

The larger the reserve ration, the:

smaller the money multiplier and the less money will be created in the economy

Competitive market

standardized good, full information, no transaction costs, participants and price takers

When prices rise, the interest rate:

tends to rise

Positive economics

the cause and effect of behavioral relationships

Opportunity cost

the cost of the loss of potential gain from other alternatives when one alternative is chosen

Risk-free rate

the interest rate that would prevail if there were no risk of default

Gross domestic product is the sum of:

the market values of all final goods and services produced within a country in a given period of time

Securitization

the practice of packaging individual debts into a single uniform asset

Arbitrage

the process of taking advantage of market inefficiencies to earn a profit

Physical capital is:

the stock of equipment and structures that allow for the production of goods and services

Exchange rate

the value of one currency expressed in terms of another currency

Incentives

things to get something done the way you want ex) paid more if job is done today; fired if job is not done

If U.S. prices increase relative to the rest of the world, we would expect imports:

to increase and exports to fall

Frictional unemployment is:

unemployment caused by workers who are changing their location, job, or career

Efficiency

using resources to their maximum potential

Determinants of the supply of loanable funds are:

wealth, current economic conditions, expectations, uncertainty, borrowing constraints, social welfare policies, culture

Rational behavior

weighing all the possible options and picking the right, most effective one

The unemployment rate tells us:

what percentage of the labor force want to work and can't find a job

Foreign direct investment is:

when foreign companies buy and operate physical capital within the U.S.

Stagflation

when high inflation occurs despite low economic growth and high unemployment

Diversification

when risks are shared across many different assets or people

If we consider the reality that each worker has different skills, then the production possibilities frontier:

would display an increasing opportunity cost of a good as more of that good is produced