Econ Final Exam

According to taxes shown in figure, an individual who earns 75000 in taxable income will pay income of:

$10,462.50

Suppose this same individual earning 7500 in taxable income is subject to same marginal tax rates in figure, but now government has implemented an alternative minimum tax of 15% (flat tax). This individual will pay income tax of:

$11,250

Assume nominal wage working at cookout was $10 per hour in 2011 and through series of year end raises, by 2016 your nominal wage increased to $12 per hour. If CPI in 2011 was 220 and bc inflation CPI in 2016 increased to 280, what was 2016 real hourly wage rate using 2011 dollars?

$9.43 per hour

The economy in the figure initially begins at point A and a negatively supply shock (real shock) takes it to point Y. BUT the fed reacts by increasing money growth by 9%, holding V constant, in response to the feds actions that real GDP growth rate would be _____ in short run and ______ in long run.

-1 and -3

Suppose an economy is in long run equilibrium with potential growth rate 3% and separating growth 7%. If there is a negative shock to private spending such that spending growth decrease to 1% real growth would be _______ and inflation would be _______ in short run.

0%; 1%

Steady State level of output (Yss) in country if A=1, S=0.3, O=0.01, and n=0.02?

10

Steady State level of capital (Kss) in country if A=1, S-0.3, O=0.01, and n=0.02?

100

The economy in the figure initially begins at point A and a negatively supply shock (real shock) takes it to point Y. The fed reacts by increasing the money growth by 3%. Holding V constant, in response to the feds actions inflation would be ______ in short run and ______ in long run.

11 and 12%

Suppose tax rate on first 20,000 of income earned is 5%; 10% on next 20,000 earned, and 20% of any additional income earned. A person earning 100,000 of taxable income would have an average tax rate of?

15%

Country real capita GDP is 10,000 at start of 2015, each year economy grows at 7%, what will value of countries real per capita GDP in 2055 be?

160,000

Since mid 1950s the federal government has raised about _____ of GDP in tax revenues and has spent about ____ of GDP

18% and 20%

In small economy, rate of money growth for current year is 5% and velocity of money circulation is stable. If real GDP is growing at rate of 3%, what is inflation rate?

2%

Suppose solow growth rate is 3% and spending growth is 5%. The equilibrium inflation rate is?

2%

Suppose fed carries out open market purchase and credits account of a bank by 120,000. Further suppose that all banks maintain a reserve ratio of 5%, if banks don't hold any excess reserves and currency to deposit ratio is 0, how much is money supply (M1 and M2) expected to change?

2.4 million

A country has 100 million people, 60 million are non- institutionalized citizens. Of these 15 million are not interested in working, another 5 million are interested in working, but have given up looking for work, 10 million still looking. Of those who do have jobs, 10 million are working part time but want to work full time and remaining 20 million are working full time, BUT what is the unemployment rate in this country?

25%

Top 20% income earners pay close to a staggering 70% of all federal taxes. The top 1% alone pay about what percent of all federal taxes?

25%

Slow growth rate is 3% and spending increases from 5 to 10%. Assuming prices are STICKY and in short run inflation increases to 4%, then short run real growth would be?

3%

According to quantity theory of money, a nation that increases its money supply by 30% should expect its price level to increase by _______ in long run?

30%

Suppose fed carries out open market purchase and credits account of a bank by 120,000, BUT further suppose all banks maintain a reserve ratio of 20% even though the fed has set a required RR of 10%, how much is money supply (M1 and M2) expected to change?

360,000

A country has 100 million people, 60 million are non- institutionalized citizens. Of these 15 million are not interested in working, another 5 million are interested in working, but have given up looking for work, 10 million still looking. Of those who do have jobs, 10 million are working part time but want to work full time and remaining 20 million are working full time. How many people in this country are in labor force?

40 million

Refer to figure: Assume economy is currently at point Y and growth rate of velocity of money is constant. If V continues to remain constant, the Fed should increase the growth rate of money supply by ______ percentage points to get the economy back to long-run equilibrium?

5

The figure depicts Dynamic Aggregate Demand Curve. Point A on this represents a real GDP growth rate of..?

5%

You lend your little bro money for a year at a nominal interest rate of 10% and inflation rate for that year turns out to be 5%. Your real rate of return for that year is?

5%

What is the number of people who are employed at market wage? How many people end up employed due to implementation of $10 minimum wage?

60;40

Solow growth rate is 3% and spending increases from 5 to 10%, due to an increase in money supply. Assuming prices are flexible, new equilibrium flat rate is?

7%

Small economy produces only 4 good in table 2, what is the GDP value?

7200

Refer to table above, what s labor force participation rate in 2015?

77.14%

If consumer price index was 125 last year and is now 135, inflation rate was?

8%

Country has 2008 growth rate of 4.2% and 2007 has GDP of 8,222; what is GDP in 2008 (billions)

8567

Data from table 3 of iPhone production, nominal GDP in 2010 is _______ and real GDP in 2010 (2000 dollars) is ______?

9900; 9000

Which of the following is NOT a difficulty that the fed faces in conducting monetary policy?

ALLL of above are difficulties

Business fluctuations caused by shocks to aggregate demand rely on assumption that prices and wages are slow to adjust to economic shocks. Which could explain why some prices and waged are sticky?

ALLLL of above

Since 1980, structural unemployment in many european countries has been high relative to that of U.S. Which is NOT a likely explanation of this phenomenon?

All of the above are likely

Position of vertical Long- Run aggregate supply curve shows the economies?

potential growth rate given by real factors of production

Great depression is caused by?

BOTH aggregate demand shocks and real shocks

2 people voluntarily trade with each other?

BOTH of them will be made better off

Monetary policy is conducted to mitigate business fluctuations by using the feds control over the money supply. This awesome power allows them to influence the?

DAD curve

What statement is true about GDP?

GDP does not account for distribution of income in a country

Key fact about wealth of nations economic growth does the figure illustrate?

GDP per capita varies enormously among nations

Nations with large underground or illegal sectors....

GDP will underestimate total production in economy

Crowding out occurs when I. Government borrows money from public that firms would have used for investment funds II. Government sells bonds, raising interest rate and causing people to save more and consume less III. An economy is closed and does not trade with outside world

I and II ONLY

If real GDP per capita declines, this means which has to occur? I. population increase/ GDP no change II. GDP decrease/ population no change III. GDP increased/ population declined

I and II ONLY

On average social security system redistributes income from I. High wage to low wage workers II. Men to women III. People with long to short life expectancies

I and II ONLY

Which would be consistent with shift of Dynamic Aggregate Demand Curve out and to right? I. Faster money growth rate II. Increased consumer and investor confidence III. Higher taxes

I and II ONLY

Examples of active labor market policies that can reduce structural unemployment include: I. Job re-training programs II. Job search assistance III. Early re-employment bonuses

I, II, and III

Although unemployment rate is single best indicator of how well labor market is working, it is considered incomplete because it I. Does not measure how well people are matched to jobs II. Does not count discouraged workers III. Counts part time workers who would like to work full time as employed

I, III, AND III

In response to rising uncertainty following terrorist attacks of 9/11, the fed ?

INCREASED monetary base

Ice Cube/ Ice- T/ Vanilla Ice?

Ice T

If inflation rate falls from 10% to 3%, then?

None are correct

Which panel in the figure shows expected relationship between real GDP growth and unemployment?

Panel A

Real business cycle model, where prices are assumed to be flexible, predicts that business fluctuations are caused by?

REAL shocks ONLY

Akemi, Japanese citizen, works in U.S, value of output is included in?

U.S GDP

Given the difficulties that central bankers face in conducting monetary policy, it is extremely hard to get the amount and timing of monetary policy "just right" The main problem associated with TOO MUCH expansionary monetary policy is?

additional inflation

Fiscal policy is subject to same real shock dilemma as monetary policy which illustrates an additional issue fiscal policy faces when trying to combat a recession brought on by negative real shock?

after real shock economy is still producing at their potential growth rate and economy has few unemployed resources to target

Example of growth disaster discussed in class?

argentina

Inflation is a increase in?

average level of prices

Movements in real GDP around its long term trend are?

business fluctuations

How can people who are laid off from work due to a recession eventually turn into structurally unemployed people?

by staying unemployed so long that their skills become outdated

Catching up growth is due to?

capital accumulation

Which statement explains why growth in china has been so rapid recently?

china began with very little capital, so marginal product of capital was very high

Suppose current administration decided to reduce the amount of government spending. If federal reserve was concerned that this may cause a recession, fed would?

conduct open market PURCHASES of government bonds

Suppose Federal Funds Rate is currently at 3.5% and fed sets a target federal funds rate of 4% to achieve its goal, the fed should?

conduct open market SALES of government bonds

In steady state, output is?

constant

Which price index measures average price for basket of goods purchased by typical American consumer?

consumer price index

Largest SPENDING component of GDP in U.S is?

consumption

Reason the U.S has experienced sustained economic growth for over 200 years is due to?

continued advances in technological knowledge

Conditional convergence refers to tendency for?

countries with similiar steady- state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge

Which of the following is NOT cost of inflation?

definite decrease in real wages throughout period of inflation

Following recent election in November, increase in consumer and business confidence. New Keynesian Model prices adjust slow, we would depict this increase in business and consumer confidence as outward shift of _______ which would result in ______ inflation and _____ real GDP growth in short run.

dynamic aggregate demand curve; higher; higher

We increase human capital by engaging in _______ and technological knowledge by engaging in _______?

education and training; research and devolpment

Time necessary for fiscal policy to have impact is?

effectiveness lag

When countries have severe debt problems?

expansionary fiscal policy can reduce real growth

Most proximate (direct) cause of growth in real GDP per capita?

factors of production

Cities where people go to retire there is larger markets for Viagra. Nancy (viagra saleswoman) moved from Utah to Florida b/c of warmer climate and time looking for new job. Nancy would be considered?

frictionally unemployed

Solow model, if countries population growth increases.......?

growth decreases as economy moves toward new lower steady-state capital stock

Solow model, if a country increases its savings rate?

growth increases as economy moves toward a new, higher steady state capital stock

When hit with a negative real shock, the fed must pick a policy that chooses between?

growth rate thats too low and an inflation rate thats too high

Ricardian Equivalence holds, then an expansionary policy will ?

have NO effect on aggregate demand either in short or long run

Diminishing returns to tractors indicate that?

having more tractors leads to more output, but at decreasing rate

What kind of rising costs will likely cause U.S government spending to increase dramatically in future?

health care

Medicare program offers?

health care benefits for elderly

In short run, if fed responds to a negative real shock by raising the growth rate of money supply, inflation will be?

higher than the rate would be without having responded to negative shock

Under fractional banking, banks?

hold only a FRACTION of deposits in reserve, lending the rest

Fiscal Multiplier concept is important bc?

how small changes in government spending may have large impacts on overall output

Which of the following is NOT a true statement related to economics of ideas?

ideas for increasing output are primarily researched, developed, and implemented by government

Ideal fiscal policy will?

increase aggregate demand in bad times and pay off debt in good times

Which is MOST effective fiscal policy to fight a recession if people react to uncertainty by saving all additional money they earn?

increase in government spending

If federal reserve wishes to avoid short run increases in the unemployment rate, correct response to a NEGATIVE AD shock would be?

increase in money supply growth

All of the following would be considered major reasons for increase in female labor force participation after World War II EXCEPT:

increase in overall population bc of baby boom

According to quantity theory of money, which of following would cause price level to decrease?

increase in real GDP bc the population became more productive

One of the feds tools to influence money supply is their ability to manage reserves of banks held at the Fed. If fed wanted to decrease money supply, they would ________ the Required Reserve Ratio and _______ the interest rates on reserves held at the fed.

increase; increase

"Inflation is always and everywhere a monetary phenomenon," this is consistent with quantity theory of moneys prediction that?

increases in money supply are primarily inflation cause

Which of the following accounts for largest source of tax receipts for U.S federal government?

individual income tax

Aggregate demand curve shows all combinations of ______ and ______ that are consistent with a specified rate of _______.

inflation, real GDP growth, spending

Difference between per capita GDP in North Korea and South Korea is due to?

institutions

Which of the following real shocks would NOT explain shift of LRAS curve from A to C in figure?

invention of new computer chip

Most VOLATILE spending component of GDP in U.S is?

investment

Which of the following is NOT institution of economic growth?

labor unions

Discount rate lending occurs when federal reserve?

lends reserves directly to banks

As FDA uses ________ time and resources to ensure the safety of new drugs, _________.

less; more people will die from taking unsafe drugs

Correlation between infant survival rate and real GDP per capita?

positive

In 2014 and 2015, growth slowed bc of cold weather in midwest and north east. In real business cycle framework, we depict this as inward shift of __________ which would result in _______ inflation and ______ real GDP growth

long run aggregate supply curve; higher; lower

Most likely influence of internet on rate of frictional unemployment has been to?

lower it

When deciding how much to study for class- students should study until?

marginal costs exceed marginal benefits

Tax rate paid on an additional dollar of income is?

marginal tax rate

GDP is defined as...

market value of all final goods and services produced

The difference between nominal and real GDP is that nominal GDP....?

measures country production of final goods/ services at current prices and real GDP measures all final goods and services using fixed base year price level

Which of the following measures of money supply contains "currency"?

monetary base, M1, M2

When economists state that "money is neutral" they mean that the?

money supply does not affect real GDP in long run

Cutting edge growth is due to?

new ideas

Which of the following would be considered unemployed?

none of the above

Marginal product of capital is increase in?

output when 1 more unit of capital is added

The money you pay into social security goes to?

pay current beneficiaries

What are the incentives of British sea captains and convicted felons?

payment (to ship captains) dependent on survival rate of prisoners

When inflation functions as a type of tax, which of following groups of people will be hurt the most?

people who hold currency and coins in their wallet, purse, or at home

One measure of student output is number of completed math problems produced- using pen/paper 50 problems were solved in 2 hours; using pen/paper/calculator 100 problems were solved in 2 hours- which factor of production can increase output?

physical capital

Income tax system in U.S is?

progressive

Which is NOT a function of federal reserve?

providing loans to small businesses

If initially an economy is in a long run equilibrium with m=5%, v=3%, M=2% and potential growth rate Yr=6% and then bc of economic uncertainty v falls to 1%, what should fed do?

publicly demonstrate a commitment to keep M and V at 8% by raising M

In working to correct a recession with fiscal policy, government can ?

raise its expenditures and lower taxes to increase aggregate demand

Recession is defined as significant, widespread decline in?

real income (GDP) and employment

New Keynesian mode, predicts business fluctuations are caused by?

real shocks and shocks to aggregate demand

Data in table represents a _______ tax system

regressive

Between 1978 and 1983, food production in china rose 50% and 170 million people rose above international poverty line. This occurred because..?

return to property rights in farming

Solow model of economic growth, when investment exceeds depreciation capital stock?

rises and output rises

Suppose country is at steady state, what would happen to output over time if there was a sudden increase in productivity from A=1 to A=2?

steady state would increase and output would grow until reached new steady state

Joe is a high school graduate with NO college education, been a truck driver for 20 years but lost his job bc of new self driving truck technology that eliminated any need for truck drivers in industry. Joe would be considered?

structurally unemployed

Fisher Effect?

tendency of nominal interest rates to rise with higher expected inflation rates

4 towns in table 1- lowest standard of living?

town C

Which is NOT one of four programs that make up nearly 2/3 of federal spending in U.S?

unemployment insurance

Adam Smith "Invisible Hand" concept?

vietnamese farmer grows rice, exporters ship it to U.S, grower in NY sells to customer

Components of factor income approach to splitting GDP?

wages, rent, interest, and profit

We care about wealth as measured by real GDP per capita bc?

wealth is positively correlated with many aspects an individuals standard of living well-being

You lend your little bro money for a year at a nominal interest rate of 10% based on your expectation that inflation will be 10%. The inflation rate turns out to actually be 5%, as a result?

wealth is redistributed from brother to you