Econ 201 Final

If $1000 is invested at 3% per year for 10 years the investment grows to $1343.92. This means the present value $1343.92 at an interest rate of 3 percent 10 years from now is

$1000

The real wage rate equal

(money wage rate)/(price level)

Suppose the consumption function is given by the equation C=100+0.8YD, where YD is disposable income. What is the marginal propensity to consume?

0.8

If the MPC is 0.9 and there are no income taxes or imports, the multiplier for a change in autonomous expenditure equals

10.0

Based on the following data for the country of Tiny Town

10/80 x 100

If nominal GDP=$15 trillion and the quantity of money is $3 trillion, what is the velocity of circulation?

5

If the CPI was 132.5 at the end of last year and 140.2 at the end of this year, the inflation rate over these two years was

5.8 percent

GDP equals

C+I+G+(X-M)

The Taylor Rule states that the

Fed should adjust the federal funds rate to take account of deviations of inflation from its target and real GDP from potential GDP

In the US, the central bank is the

Federal Reserve System

In the illustration above, which figure shows an aggregate production function?

Figure A

The current chairman of the Federal Reserve System is

Janet Yellen

___economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating a t full employment

Keynesian

The Euro equivalent to the fed funds rate is

LIBOR

____ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic.

Monetarist

An example of "investment" in computing real GDP using the expenditure approach is the purchase of

a new set of tools by an auto mechanic, for use in repairing cars

In Oct 2008, Pres Bush enacted the Alternative Minimum Tax Relief Act of 2008, which resulted in lower taxes on labor income. According the supply-side view, this would result in

a rightward shift in the supply of labor curve

If Nike, an American corporation, produces sneakers in Thailand this would

add to Thailand's GDP but not to US GDP

Disposable income is equal to

aggregate income minus taxes plus transfer payments

Joe likes to sleep late in the mornings and play tennis in the afternoons. The opportunity cost of Joe attending his morning class for one hour is

an hour of sleep given up

Because we face scarcity, every choice involves

an opportunity cost

Taxes and gov expenditures that, without need for additional gov action, change in response to changes in the level of economic activity are examples of

automatic fiscal policy

Fed Reserve open market operations directly influence

banks

The fed funds rate is the interest rate

banks charge each other on overnight loans

The majority of money is created when

banks make loans

To increase the quantity of money in the economy, the Fed Reserve is likely to

buy gov securities in an open market operation

When the Fed raises the federal funds rate, in the foreign exchange market people _____ dollars and the price of the dollar ____ on the foreign exchange market.

buy; rises

In an open market purchase, the Fed ____ gov securities, which ____ bank reserves.

buys, increases

Uncertainty about monetary policy

can keep investment low.

According to the intertemporal substitution effect, a fall in the price level will

cause the interest rate to fall so that investment increases and the quantity of real GDP demanded increases

Monetary policy affects real GDP by

changing aggregate demand

During the Reagan administration in the 1980's, tax rates were ____ and the budget deficit ____.

cut; increased

Fiscal policy includes

decisions related to government expenditure on goods and services, the value of transfer payments, and tax revenue

According to the wealth effect, if real wealth decreases then people

decrease their consumption expenditure

On Jan 1, 2013 the income tax rate for single taxpayers making more than $400,000 per year increased from 35% to 39.6%. This tax increase _____ potential GDP.

decreases

By itself, an increase in exports

decreases GDP

An income tax ____ potential GDP by shifting the ___ curve ____.

decreases; labor supply; leftward

The decreasing slope of a production function reflects

diminishing returns

Unemployment insurance are payments made to unemployed workers. Typically workers are paid for no more than 26 weeks. In Dec 2012, the fed gov passed legislation that would extend the payments to a maximum of 73 weeks. This extension is an example of

discretionary fiscal policy

Saving equals

disposable income minus consumption expenditure

According to new growth theory, technological change is driven by

firms' attempts to increase their profit

The three type of unemployment are

frictional, structural, and cyclical

In the expenditure approach to GDP, the largest component is

gross private domestic investment

The US gov's budget

has mostly been in deficit during the past 30 years

The Council of Economic Advisers

helps the president and the public stay informed about the state of the economy

We are interest in long-term growth primarily because it brings

higher standards of living

Autonomous consumption is that portion of consumption expenditure that is not influenced by

income

For the years 2011 and 2012, the Social Security payroll tax was reduced by 2 percentage points. This reduction ___ the fiscal imbalance.

increased

The demand for nominal money

increases as the price level increases

The People's Bank of China announced that it was lowering by 1.08 percentage points the one-year lending rate in response to the slowdown in the Chinese economy. This rate is the Chineses equivalent of the federal funds rate in the US. This policy ____ the supply of loanable funds.

increases; decreases; increases

Taking account of the supply-side effects, a tax cut on labor income ____ employment and _____ potential GDP.

increases; increases

In the short run, the Fed Reserve faces a tradeoff betweeen

inflation and unemployment

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change?

inflation rate

The Federal Open Market Committee

is the main policy-making organ of the Federal Reserve

The Fed Reserve monetary policy goals of maximum employment means

keeping the unemployment rate close to the natural unemployment rate

Factors of production include

land, labor, capital, and entrepreneurship

In the Keynesian model of aggregate expenditure, real GDP is determined by the

level of aggregate demand

In 2012, Ben Bernake

low; aggregate demand

To eliminate the fiscal imbalance the gov could

lower benefits and increase tax revenues

GDP is the total ____ produced within a country in a given time period.

market value of all final goods and services

As a means of payment, the functions of money are

medium of exchange, unit of account, and store of value

Controlling the quantity of money and interest rates to influence aggregate economic activity is called

monetary policy

The country of Kemper is on its aggregate production function at point W in the above figure. The gov of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will

move to point such as Z

Because pollution reduces economic welfare, on this count real GDP as measured

overstates economic welfare

One reason that the aggregate demand curve has a negative slope is because

people buy more foreign goods when the domestic price level rises

Factors that influence labor productivity include ___.

physical capital, human capital, and technology

Classical growth theory asserts that

population growth is determined by the level of real GDP per person

Neoclassical growth theory predicts that

population growth rates slow as employment opportunities for women increase

A consumption function shows a

positive(direct) relationship between consumption expenditure and disposable income

Which of the following is one of the Fed's policy goals?

price level stability

The real wage rate measures the

quantity of goods and services that an hour of work will buy

We distinguish between the long-run aggregate supply curve and the short-run aggregate supply cure. In the long run

real GDP equals potential GDP

Which of the following is used to calculate the standard of living?

real GDP/population

A discretionary fiscal policy is a fiscal policy that

requires action by the Congress

If the Fed wants to decrease the quantity of money, it can

sell US gov securities

Income taxes in the US are part of automatic fiscal policy because

tax revenues increase when income increases thus offsetting some of the increase in aggregate demand

Monetary policy is controlled by

the Fed Reserve

A classical economist believes that

the economy is self-regulating and always at full employment

Which, if any, of the following causes a country's reported GDP to be less than its total economic production?

the exclusion of household production

If the fed sells US gov securities

the fed funds rate rises

Two methods of measuring GDP are

the income approach and the expenditure approach

An individual is structurally unemployed if

the individual lacks marketable job skills because technology has changed

In March 2013 the Fed announced that it might decrease its open market purchases of securities by the end of the year. This announcement suggests that the Fed in concerned that

the inflation rate will rise

The aggregate demand curve shows

the quantity of real GDP demanded at different price levels

Which of the following is a macroeconomic decision or concept?

the unemployment rate for the entire economy

The government's budget deficit or surplus equals the

total tax revenue minus total government outlays

The CPI is a measure of the average of the prices paid by ___ for a fixed basket of consumer goods and services.

urban consumers