MacroEconomics Final

What is the coupon payment of a bond with a face value of $5,000 and an annual intrest rate of 4%? Coupon payment is equal to

$200

Suppose that in an economy, net taxes and goverment spending are independent of income. It is determined that when govt. spending decreases by $100 billion, income falls by $1000 billion. In this economy the value of MPS=________. The value of MPC=________.

0.10,0.90

If an economy, when net taxes decrease by $200 billion, real GDP increases by $800 billion. The value of the MPC in the economy is

0.80

Suppose, you are lending money to your friend julia and you want a real rate of return of 8% . Futhermore, you expect inflation rate to be 3%. Which of the following interest should you charge?

11%

The FOMC (Federal Open Market Committee) consits of ___ members. 7 of the member are ___________. _______ of the 12 preisdents of the Federal Reserve banks vote on a rorating basis. The president of the NY Federal Reserve Bank ______ gets a vote.

12,The board of Govenors,4,Always

Suppose the economy MPC is 0.80. Congress has decided that 75 percent of an increase in a specific goverment expenditure initiative (G) must be covered by an increase in taxes (T). Both G and T are independent of income. For this economy, the net value of the govt. spending multiplier is

2.00

Assume that in Splendora, planned investment is $50billion, but actual investment is 85 billion. Unplanned inventory is

35 billion

Assume there in no goverment or foreign sector. If the MPS is 0.25, the multiplier is

4

Assume there is no goverment or forign sector. If the multiplier is 2, a $20 billion increase in planned investment will cause aggregate output to increase by

40 billion

If earl received an $800 bonus and his MPS is 0.25, his consumption rises by $_______ and his saving rises by $__________.

600;200

In the Republic of Priceland, in 2009 the consumer price index was 221.00. In 2010 the index increased to 237.58. Calculate the rate of inflation in Priceland between 2009 and 2010

7.50%

Capitol Stock: Stock of capitol on January 1,2009 11,000 Billion Stock of capital on December 31, 2009 $11,900 billion. From this you can conclude that in 2009, the level of net investment

900 billion

__________ is determined in the goods market and influences the __________

Output;Money Demand

If the economy is operating way below capacity, an increase in aggregate demand causes a big change in the ________ and small change in _______

Output;Price Level

Consumption is ___________ related to household income and wealth and hosuseholds' expectations about the future, and _______ related to interest rates.

Positively:Negatively

If___________ equilibrium output ________, the price level decreases

actual; is below potential aggregate ouput

The relationship between the level of prices and the total demand for all goods and services is

aggregate demand

Macroeconomics tend to combine many markets into one. This method is known as

aggregation

The aggregate supply curve shows the relationship between the aggregate quantity of output supplied by _______ and ______________

all the firms in an economy; the overall price level

Using money as a medium of exchange is more efficient than barter because

barter requires a double coincidence of wants

Short Run fluctuations of an economy are called

business cycles

The capacity for long-run economic growth for an economy is determined

by the size of its labor force, its capital stock, and productivity of labor and capital.

If output is falling and unemployment is rising, the economy must be in an

contraction

Expansionary fiscal policy is used by the goverment to

create new jobs in the economy

Transfer payments are not included in GDP calculation because these are

income recieved, but not as payments for providing current goods and services

A __________ in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the _____________

increase ; Left

To decrease the price level the goverment could adopt policies that

increase aggregate supply and decrease aggregate demand

A decrease in the intrsest rate will

increase the optimal money balance

On june 5, 2003, the European Central Bank acted to decrease the short-term intrest rate by half a perctentage point to 2 percent. At this time European countries were growing very slowly or were in recession.It was hoped that, due to the rate cut, planned investment would __________ and aggregate output or income would _______.

increase,increase

If MPC increases, the value of the investment multiplier ______

increases

According to the real wealth effect ( or real balance effect), a decrease in the price level

increases consumers' expenditures due to a increase in the purchasing power of household wealth

If the Fed __________ the money supply, there will be a ________ of money and the equilibrium intrest rates will ________

increases;surplus;fall

Suppose planned investment and consumption are independent of interest rate. If the money supply is increased,

intrest rates fall, but investment and consumption do not change and consequently GDP does not change

During a recession

investment may not respond positively to lower interest rates since low demand for goods utilization and low investment.

In the base year, nominal GDP

is always equal to real GDP

The opportunity cost of holding money

is the foregone interest from holding bonds

If interest rates decrease to a very low level, people will most likely hold

less bonds more cash

Dealing with the control of the nations money supply

monetary policy

If the long-run aggregate supply curve is vertical, the ____________ a change in net taxes on aggregate output in the long run is zero.

multplier effect of

The demand for money and the intrsest rate are

negatively related

Your college bookstore receives a shipment of new economic texts for $60,000. This transaction is

not included in GDP calcuation, since books bought by the bookstore are intermediate goods

At higher intrest rates the

quantity of money demanded is lower

Contrationary monetary policy

r^>I(down)>AE(Down)>Y(down)

Recession is a period during which

real GDP declines for at least 2 consecutive quarters

The structural deficit

remains the same at full employment

If households wealth increases, the consumption function

shifts upward since, for the same level of income, individuals can spend more.

Johns grandfather was a coal miner in Pennsylvania. After the mines shut down in the 1940's he could not find a job. He was

structurally unemployed

Planned investment must equal actual investment for

the economy to be in equilibrium

The two links between_______ and _________ are the intrest rate and the unemploment rate.

the goods market;the money market

If there is excess demand in the money market,

the interest rate will increase until the quantity of money demanded is equal to the quantity of money supplied.

The term "privately held federal debt" refers to

the part of the federal debt that is held by private individuals and organizations.

The crowding effect refers to

the reduction in private investment caused by increases in goverment spending.

If an increase in the US money supply resulted in a very large change in the price level and a very small change in aggregate output

then the US economy must have been on the very steep part of its short-run aggregate supply curve.

If actual investment exceeds planned investment

there will be an accumulation of inventories

One reason why GDP is not a good measure of national well being is that it fails to take into account

value of leisure

If corinne's income is reduced to zero after she loses her job, her __________ will be greater than zero and her ________ will be less than zero.

Consumption;Saving

In the circular flow diagram, the diffrent payments made by _______ to ________ include wages, rent and profits.

Firms;Households

Goverment policies that deal with taxes and spending are known as

Fiscal Policy

The smaller the MPS, the smaller the mulitiplier

False

Banks borrow not only from the Fed but also from each other. What is the interest rate in this market called?

Federal funds rate

Which of the following is NOT a point raised by those who argue agaianst worth?

Growth is required to improve conditions for the poor

Which of the following is NOT a position held by the advocates of economic growth?

Growth often makes available goods of dubious usefulness

Which of the following best describes the relationship between aggregate expenditure and real GDP?

If aggregate expenditure falls short of real GDP, inventories will accumulate and real GDP and aggregate income will fall in future.

If there is an unexpected decrese in investor confidence, leading to a sharp decrease in orders for new plants and equipment

Income (GDP) decreases, consumption decreases, savings decreases, investment decreases, demand for money decreases and rate of interest decreases.

The major lesson of the circular flow diagram is that total _______ must equal total_________.

Income;Spending

National output began to increase during the fourth quarter of 2001 and continued to increase until the first quarter of 2003. At the same time, employment declined with a loss of over 2 million jobs.

Increase In labor activity

During the last half of the 1990's the federal goverment budget went from deficit to surplus. Since 2001, through, the reverse is true. What has significantly contributed to recent budget deficits?

Increased Medicare payments,Lower tax rates,The war in Iraq

In 1899 the Bayer Company marketed acetylsalic acid as a pain reliever in powder form under the name Asprin.

Innovation

Beginning in the late 1950's the field of nanoscience emerged as scientsists developed and refined techniques for the manipulation of materials billionths of a meter wide.

Invention

The long-run aggregate supply curve

Is vertical because all prices (both input and output prices) change at the same rate in the long run

Much of modern macroeconomics has roots in the works of

John Maynard Keynes

Increasing the required reserve ratio shifts the money supply curve to the _______ and ________ the equilibrium interest rate

Left;Increases

The extent of the crowding effect increases if planned investment becomes _______ sensitive to changes in interest rate.

More

Ingrid is paid on the 1st of every month and her car payment is due on the 10th of every month. This is an example of

Nonsynchronization of income and spending

The substantial increase in the average tax rate in the last half of the 1990's was due to the

Omnibus Budget Reconciliation Act of 1993.

In a business cycle a peak occurs before the beginning of a _________ and a trough occurs before the beginning of a ___________.

Recession;Expansion

Per capita ouput is __________ output per worker or productivity.

Smaller than

The demand for steel has decreased in July without any change in supply. Six months later there still has been no change in steel prices. This is an example of

Sticky Price

Beginning in England around 1750, productivity increased significantly in agriculture and textiles as a result of

Technical Change & Capital Accumulation

What institution has formal responsibility for setting U.S monetary policy?

The FOMC (Federal Open Market Committee)

Which of the following is an example of a contractionary fiscal policy?

The federal goverment decreasing the amount of money spent on public health programs

Suppose the treasury of the US issues bonds AND sells them to the republic to finance the deficit. What happens to the money supply and why?

The money supply remains unchanged because every dollar taken in by the Treasury goes right back into circulation through goverment spending

Welfare payments are an example of

Transfer Payments

An excess demand for money drives intrest rates up

True

An increase in the MPC increases the multiplier

True

The larger the MPC, the smaller the MPS

True

Toyota, a Japan based company manufactures a Camry automobile in Kentucky, USA and sells included in

U.S GDP under exports

We can use macroeconomic analysis to

Understand why economies grow

Although inflation was low, the real GDP growth rate in 1994 was relatively high and the labor market was beginning to tighten. Concerned about inflation, the Fed raised the bill rate from 3.1 percent in the fourth quarter of 1993 to 5.8 percent in the first quarter of 1995. Some people argued that the Fed

Was using a policy of leaning against the wind

Suppose a govt. implements expansionary macroeconomic policies at at a time when the economy is approaching full capacity. Policies will result in

a small increase in aggregate output relative to the price level increase

Suppose the economy is initially operating well below capacity. In this case, an expansionary macroeconomic policy will result in

a small price increase relative to the output increase

when income _________ the money ______ curce shifts to the left

decreases:demand

The aggregate demand curve slopes downward because at higher price level the purchasing power of consumers' assets _______ and consumption ________

decreases;decreases

If the quantity of money supplied is greater than the quantity of money demanded, then the interest rate will

fall

aggregate demand_______ when the price level rises because the higher price level causes the demand for money to increase, causing interest rates to _______

falls;Rise

In the goods and services market _________ only demand

households