ECON 202 Final
When firms in an economy start producing more computers and fewer televisions, they are answering the ________ part of one of the two big economic questions.
"what"
suppose that the consumption function is C=500+.8*YD where YD is disposable income. The marginal propensity to save is
.2
In a simple closed economy, disposable increases from 2000 to 3000. If consumption increases from 1500 to 2100 the marginal propensity to save is
0.40
The sum of the MPC and MPS must equal
1
Keynesian spending multiplier is
1/(1-MPC)
if the MPS=0.1 then the multiplier =
10
In the US what is the cost of one motor vehicle (without any trade with Mexico)>
2 automobile tires
If the federal government lowers taxes by 800 bill and the MPC = .75 gdp will rise by
2400 billion
If a store has 10,000 CDs at the start of the period and 15,000 CDs at the end, then its inventory investment during the period was ________ CDs: 1.) 5,000 2.) 1.5 3.) -5,000 4.) 0.67
5,000
if the fed govt determines that GDP is persistently operating $500 below full employment how large n increase in govt spending would be necessary to raise GDP by this amount if the MPC=.9
50 billion
Uber, Lyft, and other ride-sharing companies have hd what effect on the market for taxi cab medallions in NYC?
Decreased demand for medallions
The belief that money is the source of economic wealth for a nation is an illustration of which fallacy?
Fallacy of Composition
which of the following news headlines does not illustrate the potential for conflict between self-interest and the social interest?
Ford employees are offered a retirement incentive
Which of the following is tru of the economy
GDP=C+I+G+X-IM
which of the following is not a stock price index
LIBOR
Which of the following is a positive statement?
Low rents decrease the amount of housing landlords make available for rent
which of the following variable is bot a form of autonomous spending in the basic keynesian model
M
The US Central bank, the federal reserve system or fed, sets its inflation target for the US economy at
PCE=2%
In a closed economy how is private investnment spending on capital goods financed?
Private and public savings
Choose the correct statements about competitive markets 1. Competitive markets can exist for goods, services, money, factors of production, and inputs. 2. A competitive market has many sellers 3. A competitive market must be a global market 4. A competitive market is a market for goods but not for services
Statements 1 &2 are correct
which of the following would cause an increase in demand for hamburgers
The number of buyers increases
when the us govt restricted the imports of japanese automobiles in the 70's, what group was adversely effected?
US consumers
22. Which factor is an automatic stabilizer? a. Military spending b. Unemployment compensation payments c. Disability payments to war veterans d. Medicare payments
Unemployment compensation payments
In the equation C=a+MPC*YD __________ represents autonomous consumption
a
Adam Smith made a mistake in thinking int. trade flows should be based upon - a) absolute advantage, b) comparative advantage, c) trading inputs rather than outputs, d) barter as being a more efficient way for nations to trade
a) absolute advantage
In which product does the US have a comparative advantage - a) auto tires, b) motor vehicles, c) both, d) neither
a) auto tires
One impact of the French decision to lower the work week to 35 hours for most workers was - a) lowering of French living standards, b) an actual increase in the # of unemployed as wages paid to workers fell, c) increased French exports that now become cheaper in foreign markets
a) lowering of French living standards
The total labor force in an economy is the
a. # of people employed + # of people unemployed
The official base for calculating values of the Consumer Price Index is
a. 1982-84
If the PCE for 2018 is 110.0 and for 2019 is 115.0, how much did consumer prices rise in 2019?
a. 4.5%
38. The law intended to reform the financial system after the crisis of 2008 was called the: a. Wall Street Reform and Consumer Protection Act. b. Glass-Steagall Act. c. Camp David Accords. d. Financial Modernization and Full Employment Act.
a. Wall Street Reform and Consumer Protection Act
27. A bond is considered a. an asset for the owner and is not part of the money supply. b. M1. c. M2. d. a liability for the owner and is part of the money supply.
a. an asset for the owner and is not part of the money supply.
At the natural rate of unemployment, which category of unemployment is zero?
a. cyclical
11. If the Fed increases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____. a. decrease; increases; right b. increase; increases; right c. decrease; increases; left d. increase; decreases; left
a. decrease; increases; right
21. President Johnson's use of a temporary 10% surcharge on income taxes is a classic example of _____ policy. a. expansionary fiscal b. contractionary fiscal c. expansionary monetary d. contractionary monetary
a. expansionary fiscal
Lex graduated from college two months ago with an undergraduate degree in Finance. He is now looking for a job in the financial sector. He is currently classified as
a. frictionally unemployed
Between 1980 and 2017, which of the following grew the most?
a. gasoline
Which of the following changes would cause an increase in the market supply of apples?
a. good growing weather for apples
For used goods sold in 2019, GDP
a. omits them
In the terminology of the business cycle, a recession occurs from
a. peak to trough
Approximately, the real interest rate ____ the inflation rate _____the nominal interest rate.
a. plus;equals
If there is a major increase in demand for smart phones, then the
a. price of smart phones will rise
Nominal GDP is calculated by using
a. prices for the current prices
Many common measures of the broad concept of economic well-being are closely correlated with
a. real GDP per capita
33. The Panic of 1907 began when a. the Knickerbocker Trust failed. b. Teddy Roosevelt signed the Sherman Antitrust Act. c. the Federal Reserve was established. d. national banks were allowed to issue their own bank notes.
a. the Knickerbocker Trust failed
In the terminology of personal finance, your "savings" is
a. the market value of your accumulated assets
Which of the following is not a way to calculate GDP?
a. the sum of all transaction that occur in a year
Which of the following is not emplasized as a key growth determinant in the original Neoclassical (Solow) growth model?
a. trust in govt and the legal system
19. The theory of Ricardian Equivalence argues that expansionary fiscal policy a. will have no effect on the economy because consumers, anticipating higher taxes to pay for government spending, will decrease spending today to save for the higher taxes. b. is not effective because it causes higher interest rates and crowds out investment spending. c. is effective, but contractionary fiscal policy is not. d. is more effective than expansionary monetary policy.
a. will have no effect on the economy because consumers, anticipating higher taxes to pay for government spending, will decrease spending today to save for the higher taxes.
Which of the following is not a source of funding for business investment spending? Bonds and stocks issued by corps new production tech short term borrowing from banks all of the above
all of the above
equilibrium occurs in the basic keynesian model when there is no unintended investment in inventories Y=C+I+G total output is equal to the total of private and public spending al of the above
all of the above
the Benefits of Financial Intermediation include all of the following except provide ready source of liquidity lower transcction cost for borrowers reduce the risk of financial transactions all of the aboce
all of the above
persistent US trade deficits are due to
an imbalance between US domestic savings and investment
a chnage in the federal funds rate from 1% to 2% is also called
an increase of 100 basis points
the term liquidity means that the
asset is readily converitble to cash without much loss of value
In a closed economy (NX=0) what is the value of I if S=500 bill, G=400, and T=500
b 100
A trade deficit is defined to exist when
b US exports are less than US imports
If a country increases its national output or GDP by 2% while population grows 3%, then - a) citizens are only 1% better off, b) average living standards have fallen, c) average living standards will be unchanged as those are only averages
b) average living standards have fallen,
Which of the following groups has the highest US unemployment rate?
b. Black/African American
28. A bank run can break a bank because: a. borrowers default on their loans, and the bank's assets become worthless. b. banks cannot quickly convert illiquid loans to liquid assets without facing a large financial loss. c. depositors' panic spreads to borrowers, who want to take additional loans from the bank. d. the bank's reserves kept with the Federal Reserve are in the form of illiquid U.S. Treasury bonds.
b. banks cannot quickly convert illiquid loans to liquid assets without facing a large financial loss.
31. The Federal Reserve never buys U.S. Treasury bonds and bills directly from the federal government because it could a. make the budget deficit worse. b. be a route to disastrous inflation. c. lead to a recession. d. reduce the power of the Fed.
b. be a route to disastrous inflation.
Growth accounting enables us to
b. calculate the effects of technological progress one economic growth
The pessimistic conclusion concerning growth prospects arose from
b. changes in labor supply arising from changes in real wages
5. If the price level rises by 10%, the purchasing power of $10,000 will a. increase to $11,000. b. decrease to $9,000. c. decrease to $1,000. d. remain constant.
b. decrease to $9,000.
The Great Depression was caused by _____ shocks, and the stagflation of the 1970s was caused by _____ shocks. a. demand; demand b. demand; supply c. supply; demand d. supply; supply
b. demand; supply
The CPI overstates the true average rate of price increases bc
b. does not allow for complete substitution when relative prices change
The initial prediction about global prospects made by the Solow Growth Model was
b. economic differences in living standards should gradually narrow
The "chained-dollar" method of calculating real GDP was adopted due to
b. falling prices in information technology industries
When an official in the US govt stated that undocumented young people had taken jobs away from US workers, economists say he
b. fell victim to the Lump of Labor fallacy
12. The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____. a. higher; lower output as costs of production increase b. higher; higher output, since most production costs are fixed in the short run c. lower; higher output, since production costs tend to fall in the short run d. lower; higher profit and higher productivity
b. higher; higher output, since most production costs are fixed in the short run
Rising high school graduation rates are an example of an increase in:
b. human capital
. The economic slump in the mid-1970s looked different from the slump at the beginning of the Great Depression because it was a. the result of a lack of confidence that led businesses and consumers to spend less. b. largely caused by events in the Middle East that led to sudden cuts in world oil production and soaring prices for oil. c. the direct result of a contractionary monetary policy. d. the result solely of a negative demand shock.
b. largely caused by events in the Middle East that led to sudden cuts in world oil production and soaring prices for oil.
6. Suppose that the stock market crashes, which causes a large decrease in the value of many households' financial assets. The most likely outcome is a _____ the aggregate demand curve. a. rightward shift of b. leftward shift of c. movement up d. movement down
b. leftward shift of
Which of the following is an example of monetary policy
b. lowering interest rates to encourage borrowing
the issue of excess pollution is viewed in economics as a private market failure arising from
b. negative externalities
The compromise definition of unemployment, currently 4%, is
b. officially U-3 as calculated by the Bureau of Labor Stats
Productivity is declining when
b. population growth exceeds real GDP growth
Which of the following is used to calculate inflation or deflation?
b. price indexes such as the Consumer Price Index
If the federal government wanted to slow the US economy, which of the following policies would best achieve that goal?
b. reduce government spending
13. Sources of federal tax revenue do NOT include a. the personal income tax. b. sales taxes. c. social insurance taxes. d. the corporate profits tax.
b. sales taxes.
One consequence if NYC's rent stabilization (control) progrma is
b. shortages of apt units
John's grandfather was a coal miner in Pennsylvania. After the mines shut down in the 1940s he could not find a job. He was
b. structurally unemployed
When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the _____ effect, is a reason the _____ curve slopes _____. a. interest rate; aggregate demand; downward b. wealth; aggregate demand; downward c. interest rate; investment demand; downward d. wealth; short-run aggregate supply; upward
b. wealth; aggregate demand; downward
Using the Neoclassical Growth Model, what is the rate of technological progress if labor and capital each grew at one percent while GDP grew at 4%
b.2%
The Discount Rate, also called the Primary Credit Rate in 2019, is the interest rate that
banks pay the federal reserve when they borrow from the Fed
Keynes recommened deficit spending as
being useful Fiscal policy in the 1930S
Adam Smith believed is governed by self interest. That implies that for public goods, i.e. national defense - a) too much output will be produced for those who prefer a large military, b) it makes economic sense to privatize the inefficient Pentagon, c) private supply-demand mrkt. cannot produce the optimal amount of those goods
c) private supply-demand mrkt. cannot produce the optimal amount of those goods
US nominal GDP in 2018: III was approximately
c. 20 trillion
the congressional budget office projects GDP growth to average 2% in the coming decade. Approx how many years will it take US GDP to double?
c. 36 years
Assume the ''correct'' PPP exchange rate is $1=2 yuan. What would the Chinese price of the $20,000 US automobile be using this new exchange rate?
c. 40,000 yuan
17. The basic equation of national income accounting is GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects a. IM. b. I. c. C. d. X.
c. C.
what country had the fastest growth rate of real GDP per capita between 1980 and 2015
c. China
The Congressional Budget Office made which of the following projections for major macroeconomic aggregates for 2028:
c. Real GDP growth=2%
14. Which factor is a government transfer? a. Wages paid to U.S. senators. b. Purchases of tanks for the army. c. Social Security payments to retired auto workers. d. Payments to contractors for repairs on interstate highways.
c. Social Security payments to retired auto workers
The US has persistent trade deficits because
c. US saving is insufficient to pay all of US domestic investment in the capital stock
37. In 2008, when the U.S. financial system collapsed, it led to a. very high inflation, and the Federal Reserve followed a strict contractionary monetary policy to bring prices down. b. the Federal Reserve lowering the interest rate, and the economy revived as businesses and individuals secured low-interest loans. c. a severe cycle of deleveraging and a credit crunch for the economy as a whole. d. the Federal Reserve increasing the interest rate, which further destabilized the economy.
c. a severe cycle of deleveraging and a credit crunch for the economy as a whole.
Investment in human capital causes ________ the aggregate production function
c. an upward shift of
34 Interest rates were low in the United States in 2003 because of a. a decrease in the money supply. b. capital outflows from the United States to China. c. capital inflows and monetary policy. d. increases in tax rates.
c. capital inflows and monetary policy
10. The only government policy that has a DIRECT effect on the aggregate demand curve is a. changing the quantity of money. b. raising or lowering the tax rate. c. changing the level of government purchases of final goods and services. d. changing the level of government transfers
c. changing the level of government purchases of final goods and services.
with respect to air pollution in the US, the primary source is
c. coal fired electricity generating facilities
18. If the current equilibrium output lies above potential output, then an appropriate fiscal policy would be to _____, which will shift the AD curve to the _____. a. decrease government purchases; right b. increase government purchases; left c. decrease government purchases; left d. raise tax rates; right
c. decrease government purchases; left
If the price of gasoline doubles, you would expect the
c. demand for automobiles to decrease
Purchasing-Power Parity adjustments are made to adjust for
c. difference in price levels between countries
16. A change in taxes or a change in government transfers affects consumption through its effect on a. autonomous consumption. b. the marginal propensity to save. c. disposable income. d. government spending.
c. disposable income.
William Nordhaus and others showed in a 2011 paper in the American Economic Review that the environmental damage produced in some industries
c. exceeds the value of their contribution to GDP
Hyperinflations are always caused by
c. excessive creation of a nation's money supply
The term human capital describes improvement
c. in a worker's skills made possible by education, training, and knowledge
Green Accounting in the US national income accounts allows for
c. including environmental costs
8. As a result of a decrease in the value of the dollar in relation to other currencies, U.S. imports decrease and exports increase. Consequently, there is a(n) a. increase in short-run aggregate supply. b. decrease in the quantity of aggregate output supplied in the short run. c. increase in aggregate demand. d. decrease in the quantity of aggregate output demanded.
c. increase in aggregate demand.
32. To change the money supply prior to the Great Recession, the Federal Reserve most frequently used a. changes in the required reserve ratios. b. changes in the discount rate. c. open-market operations. d. changes in the inflation rate
c. open-market operations.
Endogenous economic growth models emphasize
c. policies and programs that can be used to promote technological change
which of the following is no included in US GDP?
c. production abroad even though the company is owned by a US firm
The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate a. productivity. b. unemployment rate. c. quantity of output demanded by households, businesses, the government, and the rest of the world. d. quantity of output demanded by businesses only
c. quantity of output demanded by households, businesses, the government, and the rest of the world.
Productivity is measured by the
c. ratio of output or GDP per unit of input
The parameter "A" in the Solow Growth Model is a proxy for
c. technological change
Social security benefits paid to older americans are indexed or tied to inflation as measured by
c. the consumer price index (CPI)
The fundamental argument in the Essay on the Principle of Population was that improvements in tech or increases in physical capital would only lead to temp improvements in productivity because they would always be offset by:
c. the pressure of rising population and more workers on the supply of land
Economic growth comes from
capital accumulation and technological advance
the main economic role of a financial system is to
channel funds from savers into investment
Economics is all of the following EXCEPT - a) a social science, b) a subject that studies incentives, c) a subject that studies choices, d) a subject that tells governments what they must do
d) a subject that tells governments what they must do
Adam Smith believed that the "Wealth of a Nation" was promoted by - a) protecting domestic jobs, b) using a scientific tax that would keep import prices equal to domestic ones, c) gradual increases in money supply, d) specialization of labor and other resources
d) specialization of labor and other resources
Assume foreign exchange rate between the US dollar and the Chinese yuan is $1=5 yuan. What would be the price of a US made car that sells for $20,000 in the US be in China
d. 100,000 yuan
15. Spending for Medicare and Medicaid accounts for approximately _____% of federal spending. a. 11 b. 14 c. 15 d. 21
d. 21
The worst hyperinflation in history occurred in
d. Hungary in 1946
Which country had the LOWEST growth rate of real GDP per capita between 1980 and 2015?
d. Zimbabwe
The consumer price index (CPI) A. reports monthly changes in prices for gdp b. is used to adjust social secruity payments to eligible participants c. it has difficulty measuring actual inflation due to quality changes and the introduction of new products d. all of the above
d. all of the above
The implicit GDP Price Deflator is a. broad measure of all prices in the US economy b. the ratio of nominal to real GDP in any period c. calulated when GDP data is availble d. all of the above
d. all of the above
Solow's Neoclassical growth model is characterized by all of the following except a. diminishing returns to capital b. a macroeconomic assumption of constant returns to scale c. relying on an aggregate production function for the determination of real GDP or y d, all of the aboce are correct
d. all of the above are correct
9. Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which outcome is MOST likely? a. a decrease in short-run aggregate supply b. a decrease in aggregate demand c. an increase in short-run aggregate supply d. an increase in aggregate demand
d. an increase in aggregate demand
"Core" inflation measures the rate of inflation of the
d. consumer price increases omitting food and energy price changes
In competitive markets, govt-imposed minimum prices will
d. create surpluses or have no effect
The problem that gave rise to NYC's rent control program was
d. decreasing supply of apartments in the city
30. Loans of reserves from one bank to another are made in the _____ market. a. commodity b. foreign exchange c. stock d. federal funds
d. federal funds
20. One of the shortcomings of fiscal policy is that it a. has significant time lags, which make it more effective. b. takes effect immediately, so it is the best policy to use in an economic crisis. c. affects aggregate demand indirectly through the interest rate. d. has time lags, so sometimes it may end up destabilizing the economy.
d. has time lags, so sometimes it may end up destabilizing the economy.
7. The aggregate demand curve would NOT shift to the left as a result of: a. a fall in consumers' wealth. b. a decrease in the amount of money in circulation. c. more pessimistic consumer expectations. d. lower labor productivity.
d. lower labor productivity.
Which of the following is in included in real GDP? a. The value of leisure b. unpaid householder work c. volunteer work to help those in need d. none of the above are included
d. none of the above are included
26. When, in The Wealth of Nations, Adam Smith wrote of "a sort of waggon-way through the air," he was referring to a. the invisible hand. b. the forces of competition. c. mass transit systems of the future. d. paper money.
d. paper money.
when the inflation rate is zero, the
d. real interest rate equals the nominal interest rate
29. Capital requirements for banks do NOT serve the purpose of: a. reducing a bank owner's incentive for excessive risk taking. b. offsetting the change in incentives caused by deposit insurance. c. putting to use the excess of a bank's assets over its deposits and other liabilities. d. reducing deposits.
d. reducing deposits.
Stopping hyperinflation must involve
d. reducing the growth rate of the money supply
23. The national debt _____ when the federal government incurs a _____. a. falls; deficit b. rises; surplus c. stays the same; surplus d. rises; deficit
d. rises; deficit
36. In return for injecting capital into banks, the U.S. government received: a. deposits at the bank. b. loans at an interest rate below the prime rate. c. bonds issued by the bank. d. shares of stock in the bank.
d. shares of stock in the bank.
25. When we keep part of our wealth in a savings account, money is playing the role mainly of: a. medium of exchange. b. unit of account. c. barter. d. store of value.
d. store of value.
Relatively free trade has the same types of costs and benefits as
d. technological change
the PCE is derived from
d. the GDP price deflator
35. Subprime mortgage loans are made a. on houses that are below average value. b. with interest rates that are below the prime rate. c. with very short maturities. d. to buyers who do not meet the usual criteria for getting a mortgage.
d. to buyers who do not meet the usual criteria for getting a mortgage.
Marginal benefit
describes preferences
a common strategy to reduce risk of a large financial loss is to
diversify financial assets so that their risk of failure are unrelated
The proposal to add silver coins to the US money supply in the late 19th century was in part aimed at
ending protracted periods of deflation
Businessed will undertake projects if the rate of return is
greater than or equal to the interest rate levied on the loan
in the quantity theory of money, the variable V is
how fast the average dollar is spent per year
Say's Law was used by classical economists to explain
how supply creates its own demand
private savigs equals
income after taxes minus consumption
in the U.S., the number of veterinarians who practice on large animals (horses, cattle, and other farm animals) has decreased largely due to
increasing spending by U.S. households on domestic pets
the price determined in the market for loanable funds is the
interest rate
the planned aggregate expenditure line has a slope
less than 1
you are choosing whether to purchase a stock or bond. If you purchase the bond, you are likely to receive a ______ return in exchange for a ______ level of risk
lower;lower
an economy produces yoga mats. if less than the efficient quantity of yoga mats is produced
marginal benefit exceeds marginal costs
In which products does Mexico have the absolute advantage
neither automobile tires nor motor vehicles
according to the "classical" quantity theory of money, Mercantilisms support for a positive balance of trade would produce
only higher prices
the "efficient market hypothesis" states that changes in individual stock prices
only reflect new info about corporate prospects
an amount that would equal a particular future value if deposited today at a specific interest rate is the
present value
national savings =
private savings plus the budget balance
An unplanned fall in inventories leads to:
production increasing.
the marginal propensity to consume equals the
ratio of the change in consumer spending to the change in aggregate disposable income
in the classical quantity theory of money
real GDP is assumed to be constant
when govts impose tariffs or taxes on imported goods, domestic consumers
reduced the quantity demanded of those imported goods
the decline in the finnish economy of 2016 is primarily an example of how
reductions in income and spending can be multiplied through the entire economy
Positive unplanned inventory investment occurs when:
sales are less than expected
In a simple closed economy, all investment spending must come from
savings
aggregate expenditure on GDP includes on GDP includes all of the following except
savings
Studying the effects choices have on the individual markets within the economy is part of
scarcity
In the circular flow model of a market economy
spending on output creates spending on inputs
more than 75% of mutual fund holdings are currently invested in
stocks and bonds
Keynesian economic policies are characterized by all of the following except
supply-side focus
governments can save when
taxes are greater than expenditures
fiscal crowding out refers to the impact of deficit spending
that raises interest rate thereby lowering private investment spedning
When the federal government budget deficit increased by 77% over the first four months of that fiscal year which of the following was the most likely impact on the US economy?
the US trade deficit would increase
If a firm pays for investment spending out of retained earnings
the firm forgoes interest it could have recieved
keynesian ideas were introduced to macroeconomics in
the general theory
economists use ____ as a model to explain how savers and borrowers come together to determine the equilibrium rate of interest
the market for loanable funds
financial intermediaries do not include
the new york stock exchange
which of the following would cause a decrease in supply of hambergers
the number of buyers decreases
in the original classical model, a recession will
the price mechanism will set in motion a process that ends the downturn
which of the following would cause a decrease in demand for hambergers
the price of french fried triples
the key short-term interest rate in the US economy is the federal funds rate. This interest rate is
the rate banks charge each other when they borrow
The "Lump-of-Labor" fallacy is associated with the correct view that in the long run
there is a limitless amount for which labor will be needed
The production possibilities frontier is the boundary between
those combinations of goods and services that can be produced and those that cannot
Macroeconomic topics include
total, nationwide employment
When Arthur Pigou and other Classical Economists were asked for a policy to deal with global depression of the 1930s, they suggested
waiting for deflationary pressures to restore full employment
the value of all accumulated savings of a household is called the
wealth
