PSU Econ 104 Final Exam

Holding all else constant, which of the following will shift the aggregate demand curve to the left? a decrease in the real interest rate a decrease in real GDP an increase in business taxes a decrease in future profit expectations of firms

a decrease in future profit expectations of firms

Which of the following is an example of a worker experiencing cyclical unemployment? a lifeguard who was hired during the summer season is laid off after summer is over a freightliner employee that got laid off because of the recession of 2007-2009 an assembly line worker who loses his job because of automation 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

Countries with high rates of economic growth tend to have

a labor force that is more productive

Which of the following policies would not help promote economic growth?

a law requiring that the funds in an individual retirement account be taxed

The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase in future years, and these higher deficits might "pose a threat to the economy by crowding out business investment and threatening a spike in interest rates." This higher budget deficit would be represented graphically by

a shift in the supply curve for loanable funds to the left

If whole avocados were used as a society's money, which of the following functions would be the hardest to satisfy? a unit of account. a store of value. a standard of deferred payment. a medium of exchange.

a store of value

A central bank like the Federal Reserve in the United States can help banks survive a bank run by

acting as a lender of last resort

In the basic AD-AS model, a decrease in government expenditures will shift ________ to the _________.

aggregate demand; left

In the basic AD-AS model, short-run expansionary fiscal policy will shift ________ to the _________.

aggregate demand; right

Which of the following is a reason why GDP is not the perfect measure of well-being in a society? it does not include the level of income inequality it does not include the amount of leisure time people have on average it does not include the level of pollution in society all of these are reasons why GDP is not a perfect measure of economic well-being it does not include health measures like life expectancy rates

all of these are reasons why GDP is not a perfect measure of economic well-being

An unplanned decrease in inventories results from

an actual investment that is less than planned investment

Economies where goods and services are traded directly for other goods and services are called ________ economies.

barter

Holding all else constant, if the economy's marginal propensity to save (MPS) increases, the consumption function will:

become flatter

To be classified as officially unemployed, one must be:

both not working and actively looking for work

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure​ inflation ​ ______ quality increases. This causes the CPI to​ ______ the cost of the market basket.

but not; overstate

Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500. If capital per hour worked increases further to $25,000, by how much would you expect real GDP per hour worked to increase if there are diminishing returns?

by less than $500

The total amount of physical capital available in a country is known as the country's

capital stock

Historical societies used precious metals such as gold or silver as money. This would be an example of a

commodity money

If the economy is in an expansion due to an increase in aggregate demand, the Federal Reserve will want to conduct _________ monetary policy which will __________ overall output and _________ the price level back to its original point.

contractionary; lower, lower

If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would

decrease

Assume that the economy is in an expansion above potential GDP. If policymakers implement an contractionary fiscal policy but overestimate the size of the multiplier, the new equilibrium level of GDP is likely to

decrease yet stay above potential GDP

According to the basic AD-AS model, an increase in taxes will ________ the price level and _________ level of real GDP.

decrease; decrease

A(n) ________ in private expenditures as a result of a(n) ________ in government purchases is called crowding out.

decrease; increase

According to the World Bank, Albania does one of the worst jobs as a country enforcing the rule of law. The consequence of a weak rule of law is

difficulty in attracting investment and low economic growth.

Assume the economy is currently experiencing stagflation. If monetary policy actions result in the output level returning to the original level, economics would say the FOMC conducted _______ monetary policy.

dovish

Looking at a basic AD-AS model and holding all else constant, if the FOMC raises the discount rate, we would see the price level ________ and the real GDP _______.

fall; fall

Because firms can free ride on the research and development of other firms

firms choose a level of research and development where the marginal cost of research is below the economy's marginal return of research.

Classical economists believe that prices are fairly ________ and are _________ policy intervention.

flexible; opposed to

Assume that, holding all else constant, taxes on businesses start to rise. If this is true, then

investment spending will fall.

Which of the following is a reason why GDP is not the perfect measure of production? it does not include levels of pollution it does not include health measures it does not include household production it does not include levels of inequality all of these are reasons why the GDP is not a perfect measure of production

it does not include household production

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

labor productivity

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as:

labor productivity

Consumption is the __________ component of GDP in the United States.

largest

Holding all else constant, a decrease in the interest paid on reserves and the interest paid on repurchasing agreements would result in a ___________ federal funds rate and a ________ shift in the aggregate demand curve.

lower; rightward

Holding all else constant, open market purchases would result in a ___________ interest rate and a ________ shift in the aggregate demand curve.

lower; rightward

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally

more difficult than with monetary policy

M1 is _________ M2.

more liquid than

The nominal interest rate equals the real interest rate __________ the inflation rate.

plus

When the price level rises from 105 to 120, the level of real GDP supplied rises from $70 billion to $90 billion. This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply and the price level.

positive; short-run

A decrease in aggregate demand results in a(n) ________ in the ________.

recession; short run

Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will

remain constant

Looking at a basic AD-AS model and holding all else constant, if the FOMC lowers the discount rate, we would see the price level ________ and the real GDP _______.

rise; rise

During a recessionary period, the unemployment rate __________ and the total output and production __________.

rises; falls

If stricter immigration laws are imposed and many foreign workers in a country are forced to go back to their home countries

the long-run aggregate supply curve will shift to the left.

If the economy is experiencing deflation,

the nominal interest rate will be lower than the real interest rate

Suppose the economy is in a recession and the Fed pursues expansionary monetary policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement to

the right

Which of the following is an example of discretionary fiscal policy? a decrease in food stamps issued during an expansion or boom an increase in income tax receipts with rising income during an expansion the stimulus payments passed by Congress in 2020 to combat the COVID-19 recession an increase in unemployment insurance payments during a recession

the stimulus payments passed by Congress in 2020 to combat the COVID-19 recession

Knowledge capital is nonrival in the sense that

two people can use the same knowledge to develop and produce a product.

My grandmother is 86 years old and retired 10 years ago. Last month she decided she was bored and wanted to find a part-time. Nana (what I call my grandmother) put in a few applications but has yet to hear back. She continues to look for a part-time job. We would officially count Nana as:

unemployed

If the federal government's expenditures are less than its tax revenues, then

a budget surplus results

Assume you take $2,300 from your checking account and transfer it to your savings account. How much will M1 change by?

-2300

Using the following data, calculate public savings for a closed economy. Please round to 1 decimal place. Remember, negative numbers are OK for public savings. Y = 13.6 C = 7.9 I = 1.4 TR = 0.8 T = 2

-3.1

If a $562 increase in autonomous investment causes a $4,385 increase in GDP, what is the MPS? Please round to two decimal places where needed.

.13

Assume you take $1,464 in cash and deposit it into your checking account. Holding all else constant, how much will M1 change by?

0

Which of the following would be an example of a microeconomic issue? Select all that apply. 1. The federal government of Sweden offers tax credits for individuals to put solar paneling on their homes. 2. Sandra takes out a loan to invest in a new business opportunity. 3. A local sandwich shop shuts down during a recession. 4. None of these are microeconomic issues.

1, 2, and 3

Suppose Apple plans to produce 9.5 million iPhones this year. The company expects to sell 7.6 million. Suppose that at the end of the year, Apple has sold 7.2 million iPhones. What is the level of planned inventories?

1.9

If the MPC is 0.61 and taxes decrease by $702, holding all else constant, real GDP will change by _____ according to the multiplier effect.

1098

If the unemployment rate is 7% and the labor force is 157,035, what is the total number of people unemployed? Please round to the nearest whole number.

10992

The United States is divided into ____ Federal Reserve Districts.

12

If the required reserve ratio is 5% and you deposit $761 of cash into a bank, what is the maximum amount the money supply could increase by?

14459

If the unemployment rate is 5.8% and the labor force is 156,269, what is the total number of people employed? Please round to the nearest whole number.

147205

The Central Bank of the United States targets a __________ inflation rate.

2%

Using the following data, calculate government purchases for a closed economy. Please round to 1 decimal place. Y = 13.5 C = 7.9 I = 3 TR = 1.9 T = 3.3

2.6

The fictitious country of World Campustan saw its GDP per-capita increase from $36,869 in 2017 to $37,843 in 2018. What was the growth rate in 2018?

2.64

Potential GDP equals $500 billion. The economy is currently producing GDP equal to $450 billion. If the MPC is 0.56, then autonomous spending must change by $_______ billion for the economy to move to potential GDP?

22

Consider the following information for a simple economy. Assume there are no traveler's checks. Currency is equal to $731, checking account balances are equal to $1,530, savings account balances are equal to $1,939, small-denomination time deposits are equal to $2,856, and money market fund shares are equal to $959. What does M1 in this simple economy equal to?

2261

Assume a government starts with zero debt. This government then runs an annual deficit for 9 years of $2,548. At the end of those 9 years, what would be amount of the government debt?

22932

The fictitious country of World Campustan is expected to have an average annual growth rate of GDP per-capita of 3.01% for the foreseeable future. How many years will it take World Campustan's GDP per-capita to double? Please round to 2 decimal places.

23.26

Assume in a country that the CPI in 1990 was 128.43, and the CPI in 2010 was 218.28. If you earned a salary of $40,514in 2010, what would be a salary with equivalent purchasing power in 1990? Please do not round until the final step. Then round to two decimal places.

23837.33

Suppose that autonomous consumption is 2,200, government purchases are 646, taxes are 0, planned investment spending is 573, net exports are 136, and the MPC is 0.53. What is the value of autonomous spending?

3.555

If the MPC is 0.74, what is the value of the spending multiplier?

3.85

You're given the following two equations representing the market for loanable funds: QL = 14.8 + 3.3r QL = 60.2 - 3.1r What is the equilibrium quantity of loanable funds?

38.2

The fictitious country of World Campustan saw it's GDP per-capita increase from $6,381 in 1975 to $37,450 in 2018. What was the average annual growth rate over this time?

4.2

You borrow $10,000 from a bank for one year at a nominal interest rate of 7.9%. If inflation over the year is 3%, what is the real interest rate you are paying? Please round to one decimal place.

4.9

Assume the required reserve ratio is 12%, the amount of deposits in a bank are $1,306, and the bank is holding $628 in reserves. How many of those reserves are excess reserves?

471.28

If the required reserve ratio is 12% and you deposit $595 of cash into a bank, what is the maximum amount the total deposits could increase by?

4958.33

Assume the required reserve ratio is 8%, the amount of deposits in a bank are $1,112, and the bank is holding $651 in reserves. What is the maximum amount of additional loans this bank can make?

562.04

Using the following data, calculate private savings for a closed economy. Please round to 1 decimal place. Y = 14 C = 6.5 I = 2.4 TR = 0.5 T = 1.5

6.5

If the MPC is equal to 0.51, then a $130.84 increase in disposable income will increase savings by what amount?

64.11

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 185 to 190. What is the real rate of interest you will earn? Please round to two decimal places.

7.3

If the required reserve ratio is 12%, what is the value of the simple deposit multiplier?

8.34

You're given the following two equations representing the market for loanable funds: QL = 11.2 + 2.7r QL = 70.5 - 3.9r What is the equilibrium real interest rate?

8.9

Suppose your friend's grandmother earned a salary of $12,855 in 1965. If the CPI is 31.93 in 1965 and 220.73 in 2017, what is the approximate value of your friend's grandmother's salary in 2017 dollars? Please do not round until the final step. Then round to two decimal places.

88865.77

An intermediate good is a good that:

A good used in production of a final good or service

Which of the folowing would be included in the United States GDP in 2019?

A pair of jeans produced in the United States in 2019

Which of the following would be considered a fiscal policy action? Select all that apply. Tax incentives are offered to encourage the purchase of fuel-efficient cars. A tax cut is designed to stimulate spending during a recession. The Federal Reserve increases interest rates during an expansion. Spending on an international conflict is increased to promote homeland security.

A tax cut is designed to stimulate spending during a recession.

Consumer confidence in the economy has fallen. How will this affect aggregate demand and equilibrium in the short run?

Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall.

What would you expect to be true if firms find that consumers are purchasing more than expected?

Aggregate expenditure will likely be greater than GDP.

Which of the following can be done using the Federal Reserve Economic Database (FRED)? Download economic data into a spreadsheet format All of these are correct Change economic data to represent percentage change over time Access the source of where the economic data originated View economic data graphically

All of these are correct

If production and prices steadily increase year over year, which of the following must be true? Nominal GDP is higher than real GDP in years after the base year. All of these are correct. Nominal GDP will always increase year over year. Real GDP is higher than nominal GDP in years before the base year. Real GDP will always increase year over year.

All of these are correct.

Someone who is working part-time but wants to be working full-time is classified as:

Employed

True or false: Microeconomics is the study of the economy as a whole which includes topics such as unemployment, inflation, and overall production

False

Jenna is the mayor of Lewistown PA and is a very smart economist. She gathers a ton of data regarding unemployment. Based on the data she collects, she decides to hold a job fair and invite local unemployed individuals and local businesses with job openings to attend. Based on this event, Jenna must believe what type of unemployment exists in Lewistown PA?

Frictional unemployment

The advice to "keep searching, there are plenty of jobs around here for which you are qualified," would be most appropriate for which of the following types of unemployment? Cyclical unemployment Frictional unemployment Seasonal unemployment Structural unemployment

Frictional unemployment

The economic growth model predicts that

GDP per capita of poor countries will grow more rapidly than in rich countries.

If the short-run aggregate supply increases by less than the long-run aggregate supply, then, at the short-run equilibrium

GDP will be below potential GDP.

Currently, out of the listed options, the largest category of revenues for the U.S. is: Discretionary Spending Individual Income Taxes Mandatory Spending Corporate Income Taxes Net Interest Payments

Individual Income Taxes

Which of the following new tool of monetary policy ends up being the floor (minimum) of the federal funds rate range? Interest rate paid on reserves Open market operations Interest rate on reverse repurchasing agreements Interest rate paid on discount loans (the discount rate)

Interest rate on reverse repurchasing agreements

Which of the following is a new tool of monetary policy as mentioned in this lesson? Reserve Requirements Open Market Operations Interest rate paid on reverse repurchasing agreements Discount policy

Interest rate paid on reverse repurchasing agreements

The purchase of a new house would be counted under which component of GDP?

Investment

Which of the following is true about the consumer price index? It accounts for people switching to goods whose prices have fallen. It updates the price changes of new products added to the market basket monthly, as these have a tendency to fall. It filters out the part of price increases that occurs because of quality improvements in products. It assumes that consumers purchase the same amount of each product in the market basket each month.

It assumes that consumers purchase the same amount of each product in the market basket each month.

An unemployment insurance program has which of the following effects?

It increases the amount of time spent searching for a job

In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford?

It shifted up

Empirical evidence from 1960 to 2014 shows that convergence in economic growth is occurring in which of the following cases?

Low-income industrial countries are catching up to high-income industrial countries.

Which of the following would be considered expansionary monetary policy? Select all that apply. Lowering the discount rate Lowering the reserve requirements Open market purchases None of the three policies listed are considered expansionary monetary policy.

Lowering the discount rate, lowering the reserve requirements, and open market purchases

In 1977, Congress amended the Federal Reserve Act and created what is known as the dual mandate. Which of the following two goals are associated with the dual mandate?

Maximum employment and stable prices

Which of the following component of GDP can be negative? consumption investment net exports None of these can be a negative number government purchases

Net exports

If the price level in the United States is changing at a faster rate than the price level in other countries, what will be the effect on net exports for the United States?

Net exports will decrease as U.S. exports decrease.

If prices steadily increase year over year, which of the following must be true? Real GDP will always increase year over year. Nominal GDP will always increase year over year. Nominal GDP is higher than real GDP in years before the base year. Real GDP is higher than nominal GDP in years after the base year. None of these are correct

None of these are correct

What are the old tools of monetary policy?

Open Market Operations, Discount Policy, Reserve Requirements

Which of the following would be considered contractionary monetary policy? Select all that apply. Lowering the reserve requirements None of the three policies listed are considered contractionary monetary policy. Open market sales Lowering the discount rate

Open market sales

The inflation rate for a given year is measured by taking the:

Percentage change in the price level from the previous year

If production steadily increases year over year, which of the following must be true? None of these are correct Real GDP will always increase year over year. Nominal GDP is higher than real GDP in years before the base year. Nominal GDP will always increase year over year. Real GDP is higher than nominal GDP in years after the base year.

Real GDP will always increase year over year.

Holding all else constant, if the price of oil unexpectedly increases by 15%, we would see a movement to __________.

SRAS go to the left

A sudden increase in the level of technology occurs. How will this affect short-run aggregate supply and the macroeconomic equilibrium?

SRAS will shift to the right, the equilibrium price level will fall, and the equilibrium level of GDP will rise.

The advice to "update your skills to something needed in current labor market conditions," would be most appropriate for which of the following types of unemployment? Structural unemployment Cyclical unemployment Frictional unemployment Seasonal unemployment

Structural unemployment

Using the notation from this lesson and assuming we are in a closed economy, public saving is equal to which of the following

T - G - TR

Which of the following is not one of the three main areas of macroeconomics mentioned in this lesson? Output and Production Employment Prices Taxes

Taxes

One limitation of monetary policy is the time in which it takes for the Federal Reserve to notice the economy has moved away from equilibrium. For example. Perhaps the unemployment rate is stable but the inflation rate has started to increase month-over month. The Fed may be unsure if the economy has already entered an expansion. This limitation is known as:

The Recognition Lag

Which of the following is a true statement about the multiplier?

The multiplier rises as the MPC rises

Which of the following is not one of the three main reasons for the inverse relationship between AE and price level? The price-level effect The interest-rate effect The wealth effect The international-trade effect

The price-level effect

You earned $30,000 in 2009, and your salary rose to $80,000 in 2018. If the CPI rose from 82 to 202 between 2009 and 2018, which of the following is true? The purchasing power of your salary remained constant between 2009 and 2018. The purchasing power of your salary increased between 2009 and 2018. There was defaltion between 2009 and 2018. The purchasing power of your salary fell between 2009 and 2018.

The purchasing power of your salary increased between 2009 and 2018.

True or false: Macroeconomics is the study of the economy as a whole which includes topics such as unemployment, inflation, and overall production.

True

True or false: The Federal Reserve Economic Database (FRED) began in the early 1990s.

True

True or false: The official unemployment rate will never reach 0%.

True

Which of the following policies is designed specifically to directly promote technological change in an economy?

government subsidization of research and development

On the long-run aggregate supply curve, a decrease in the price level

has no effect on the quantity of real GDP supplied.

Contractionary monetary policy results in a ___________ interest rate and a ________ shift in the aggregate demand curve.

higher; leftward

In this lesson, we used the terms ____________________ when talking about knowledge capital and physical capital.

ideas and objects

All of the following policies are ways for a country to promote long-run economic growth except

imposing stricter regulations to limit foreign direct investment.

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1,500. Today, a $1,500 iMac computer (also made by Apple) comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

increase in quality bias

If the economy witnesses an unplanned decrease in inventories, we would expect to see production ___________ and employment ____________, moving the economy towards macroeconomic equilibrium.

increase, increase

Suppose the economy is in long-run equilibrium and there is an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

increase; decrease to its initial value

Technological advances generally result in

increased life expectancy

Assuming no change to the federal budget deficit, if individuals expect their wealth to decrease in the upcoming year, the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.

supply; right; fall

Assuming no change to the federal budget deficit, if the government passes legislation that prohibits banks from charging fees on savings accounts, the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.

supply; right; fall

According to your readings, there are many measurement problems when it comes to the official unemployment rate in the US. One of them causes the measured unemployment rate to overstate the true extent of joblessness. That problem arises because: All of the listed answers are correct the unemployment rate does not include discouraged workers. the unemployment rate does not include people working part-time when they want to work full-time. the BLS does not verify the responses of people included in the survey.

the BLS does not verify the responses of people included in the survey.

Holding all else constant, a decrease in consumers' expected future income would be represented by a movement to __________.

the left

Holding all else constant, a decrease in the price level would be represented by a movement to __________.

the left

Holding all else constant, a decrease in the value of a country's currency relative to other currencies would be represented by a movement to __________.

the left

Suppose the economy is in macroeconomic equilibrium and the Federal government pursues contractionary fiscal policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement to

the left