ECON FINAL EXAM
If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:
$800 billion.
The __________________________ is the change in C when disposable income increases by one dollar.
Marginal propensity to consume
A negative relationship between inflation and unemployment
Phillips curve
A supply shock does not occur when
The Fed increases the money supply
In a small open economy, if the world interest rate is r1, the he economy has ________
a trade surplus
LONG ANSWER: In this graph, assume that the econony starts at Point A and there is a favorable supply shock that does not last forever. In this situation, point ___ represents short-run equilibrium Assume that the economy is at Point B. With no further shocks or policy moves, the economy in the long run will be at point ____
a. E b. A
LONG ANSWER: In this graph, the equilibrium level of income is __________ In this graph, if firms are producing at level Y1, then inentories will (rise/fall)__________, inducing firms to (increase/decrease) ___________ production
a. Y2 b. fall c. increase
The short run refers to a period
during which prices are sticky and unemployment may occur
the variables which a model tries to explain are called _________ variables
endogenous
the efficiency of labor
includes the knowledge, health, and skills of labor
Business cycles are
irregular and unpredictable
When firms experience unplanned inventory accumulation, they typically:
lay off workers and reduce production
Economic variables that flunctuate ina dvance of the economy's output and thus signal the direction of economic flunctuations
leading economic indicators
The flow of resources available to finance capital accumulation occurs in the ___________ market.
loanable funds
Assets of banks include:
loans to customers
All the following are types of macroeconomics data except the:
price of an IBM computer
A short-run aggregate supply curve shows fixed ________ and a long run aggregate supply curve shows fixed
prices ; output
The rate at which one country's goods trade for another country's goods
real exchange rate
The supply and demand for loanable funds determines the
real interest rate
The supply and demand for loanable funds determines the:
real interest rate.
According to the purchasing- power parity, if the dollar price of oil is higher in New York than in London, arbitragers will______ oil in New York and ______oil in London to drive _____ the price of oil in New York
sell;buy;down
The inconvenience associated with reducing money holdings to avoid the inflation tax is called
shoeleather costs
When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the
slope of the line eventually gets flatter and flatter
According to the sticky-price model:
some firms announce their prices in advance, and some firms set their prices in accord with observed prices and output.
Public policy aimed at reducing the severity of short-run economic fluctuations
stabilization policy
The natural rate of unemployment is:
the average rate of unemployment around which the economy fluctuates
In the classical model with fixed prices and output, the supply and demand for goods and services are balanced by:
the interest rate
The equation may be solved fr the equilibrium of:
the interest rate
When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:
unit of account
Assume that the monetary base (B) is $100 billion, the reserve-deposit ratio (rr) is 0.1, and the currency-deposit ratio (cr) is 0.1. The money supply is $______billion.
550
________ is the concept that as one input is increased (holding other inputs constant), its marginal product falls
Diminishing Marginal Product
The consumption function in the Solow Model assumes that society saves a
constant proportion of income
The value of all goods and services bought by households is called _________
consumption
Bank reserves equal
currency plus demand deposits
When an agregate demand curve is drawn with real GDP along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased , then the aggregate demand curve will shift
downward and to the left
the number of effective workers takes into account the number of workers and the
efficiency of each worker
Theories of real-wage rigidity and unemployment accordig to which firms raise labor productivity and profits by keeping real wages above the equilibrium level
efficiency wage
A production function is a technological relationship between
factors of production and the quantity of output produced
A production function is a technological relationship between:
factors of production and the quantity of output produced.
The government spending component of GDP includes all of the following except:
federal spending on transfer payments
The ________ effect is the idea that there is one -for-one influence of expected inflation on the nominal interest rate
fisher
Most economists believe that prices are:
flexible in the long run but many are sticky in the short run.
Under a floating system, the exchange rate:
fluctuates in response to changing economic conditions
In the circular flow diagram, firms receive revenue from the ______market, which is used to purchase inputs in the ______ market
goods; factor
For a fixed money supply, the aggregate demand curve slopes downward because at a lower price level real money balances are ______, generating a ______ quantity of output demanded.
higher, greater
The Solow growth model describes
how saving, population growth, and technological change affect output over time
The fact that a nation cannot simultaneously have free capital flows, a fixed exchange rate, and independent monetary policy
impossible trinity
According to Franco Modigliani's life-cycle hypothesis, the principal determinants of consumption is
income and wealth
In the Keynesian-cross model, if governent purchases increase by 250, the equilibrium of income
increases by more than 250
In this graph, when the capital-labor ratio is OA, AB represents:
investment per worker, and BC represents consumption per worker
The extra output the firm can produce using an additional unit of labor (holding other inputs fixed) is called the __________________________.
marginal product of labor
Currency + reserves controlled by the central bank equals the __________
monetary base
The ratio of the increase in the money supply resulting from a one-dollar increase in the monetary base is called the _____________.
money multiplier
If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold ______ excess reserves, which will ________ the money multiplier
more; decrease
the steady-state of unemployment
natural rate of unemployemnt
Okun's law is the _________ relationship between real GDP and the ________
negative, unemployment rate
The nominal exchange rate beteen the U.S dollar ad the Japanese yes is the:
number of yen you can get for one dollar
If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then:
output and employment will increase in the short run
The production function y= f(k) means
output per worker is a function of capital per worker
Income that people expect to persist into the future
permanent income
Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate.
positively; negatively
A ____________ is a mathematical relationship showing how the quantities of the factors of production determine the quantity of goods and services produced.
production function
A condition in which key variables are not changing
steady state
In a simple model of the supply and demand for pizza =, the endogenous variables are:
the price of pizza and the quantity of pizza sold
Frictional unemployment is unemployment caused by
the time it takes workers to search for a job
if ner capital outflow is positive, then
the trade balance must be positive
Milton Friedman argued that over long periods of time, the average propensity to consume is constant because , over these long periods of time:
the variation in income is dominated by the permanent component
An excess of imports over exports
trade deficit
Compared to a closed economy, an open economy is one that
trades with other countries
The quantity theory of money assumes that
velocity is constant
All of the following are considered major functions of money except as a:
ways to display wealth
According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer
does not change production
In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals ______
-10 billion
Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:
1,500
LONG ANSWER 2: Suppose all money is held as demand deposits (cr=0). Banks hold 20 percent of deposits as reserves (rr=2) 1. The money multiplier is ______ m= cr+1/cr+rr 2. If the monetary base is $1000 then the money supply ______ 3. If cr were to rise to .2 then the multiplier would become _________ 4. The reserve-deposit ratio is determined by a _____________ a. the Federal Reserve b. business policies of banks and the laws regulating banks c. preferences of households about the form of money they wish to hold d. the Federal Deposit Insurance Corporation (FIDC) 5. The currency-deposit ratio is determined by a. the Federal Reserve b. business policies of banks and the laws regulating banks c. preferences of households about the form of money they wish to hold d. the Federal Deposit Insurance Corporation (FIDC)
1. 5 2. 5,000 3. 3 4. a 5. c
LONG ANSWER: Assume that a country's production function is Y=K^1/2 L^1/2 1. This production function exhibits (increasing/constant/decreasing) returns to scale 2. According to the production function's specific form, increasing both capital and labor inputs by a factor of 2 will cause output to increase by a factor of ______ 3. Assume that the country possesses 4 units of capital and has 9 workers. Y is _____ 4. Suppose a capital investment tax break increases the capital stock to 9 units. The labor force is unchanged at 9. Output would become ______ 5. Suppose a more liberal immigration policy increases the number of workers to 16. Capital is unchanged at 4. Output would become _______
1. constant 2. 2 3. 6 4. 9 5.8
LONG ANSWER 3: Assume that velocity in the quanity equation is cosntant. 1. Suppose nominal GDP=$400B and M=$100B. The velocity of money is ______ 2. Suppose nominal GDP= $400B and M=$100B. The velocity of money is ____ 3. Suppose M=100, V=3, P=6 and Y=50. Nominal GDP is 4. Suppose M=100, V=3, P=6, and Y=50. Velocity and real GDP are constant. If the money supply rises to 200 then average price becomes $______ 5. If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect , a 1 percent increase in money growth will lead to rises in _____ a. inflation of 1% and the nominal interest rate of less than 1% b. inflation of 1% and the nominal interest rate of 1 % c. inflation of 1% and the nominal interest rate of more than 1% d. both inflation and the nominal interest rate of less than 1 percent
1.4 2.40 3. 300 4. 12 5. b
If the quantity of real money balances is KY, where k is a constant, then velocity is:
1/k
All the following transactions that took place in 2009 would be included in GDP for 2009 except the purchase of a
2001 Jeep Cherokee
Assume that GDP (Y) is 6,000. Consumption (C). is given by the equation C = 600 + 0.6(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500.The equilibrium value of C is ______.
3900
If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million , the unemployment rate equals _______ percent
9
Which of the following is the best example of structural unemployment?
Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available
Use Exhibit: Saving, Investment, and the Interest Rate to answer the question. The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods?
Point B
LONG ANSWER: Suppose the natural rate of unemployment is 5% and the actual rate of unemployment is 7%. Okun's Law implies the ratio of the change in unemployement rate to the percent change in GDP is 2. Also assume an equation of exchange with constant velocity and sticky prices but GDP can vary a. The growth in the money supply to reduce the unemployment rate to the natural rate should be _____% b. If we want GDP to rise 3% the the money supply should grow by _____% c. Shifting to the assumption that prices GDP can change, suppose the Phillips curve has a slope of -2. The central bank wishes to reduce inflation from 7% to 5% , this will cost the economy _____% in rising unemployment d. Suppose we have an economy where the Fed wants to increase money supply in order to increase real GDP. Assume that both GDp and prices are flexible. Furthermore, people in the economy forecast with rational expectations. In such a situation if the Fed increases the money supply by 5% then prices rise by _____ % ad GDP rises by _______%
a. 1 b. 3 c.1 d. 5 e. 0
LONG ANSWER 2: Suppose the rate of job separation is 0.02 per month and the rate of job finding is 0.10 per month. a. the natural rate of unemployment is ______% b. In the steady state, if the labor force were 100 million people, 100 million people are employed c. Given your answer to (b), ______ million individuals would lose their jobs each month d. A policy that increases the job-finding rate will ______ (increase/decrease/not change) the natural rate of unemployment e. A policy that decreases the job separation rate will ________ (increase/decrease/not change) the natural rate of unemployment
a. 17 b. 83 c. 1.7 d.decrease e. decrease
LONG ANSWER 1: Suppose the nominal exchange rate =Y80 per$1 a. based on the exchange rate a laptop priced at 500 in the U.S would cost Y _____ in Japan b. If the exchange rate were to change to 100 Y per $1 the yen would ______ (appreciate/depreciate c. If the exchange rate were to change to 100Y per $1 then imports from Japan would _______ (increase/decrease) d. If the exchange rate were to change to 100Y per $1 then exports from Japan would _______ (increase/decrease) e. Suppose a typical car in the U.S is priced at $25,000 and a similar car in Japan is priced at Y4,000,000. The nominal exchange rate is Y80 per U.S dollar. The real exchange rate is
a. 40,000 b. depreciate c. increase d.decrease e..5
LONG ANSWER: Suppose the equation for a country's Phillips curve is pie=0.02-0.8(u-0.05), where pie is the actual rate of inflation and u is the actual unemployment rate a. According to this equation the natural rate of unemployment is ____% b. The short-run inflation rate when unemployment is 4 percent (0.04) _____% c. The Fed wants to get the actual inflation rate to its target of 2% . If it succeeds the actual unemployment rate goes to _____% d. Suppose the sacrifice ratio for the economy is 2. If the Fed wishes to reduce inflation from 2.8% to 2% this would cost the economy ____% growth in GDP e. During the early 1980s the FED intentionally undertook a contraction policy which brought the rate of inflation from about 13% to 3% . This resulted in two recessions and a drop in GDP growth from about 2% to 0% over a span of roughly five years. This sacriface is _____
a. 5 b. 2.8 c. 5 d. 1.6 e. 1
LONG ANSWER: Suppose K2020=$600B, the labor force is 100M, investment is $100B, and the deprecation is 5% A. k2020 IS $________ Per worker b. i is $______ per worker c. sk is $ _______ per worker d. change of k is ______ per worker e. k2021 is $ _______
a. 6000 b. 1000 c. 300 d. 700 e.6700
In the long run, the level of the output is determined by the
amounts of capital labor nad the available technology
If the number of dollars per yen rises, this is called n
appreciation of the yen
Checking account balances are included in
both M1 and M2
An increase in the price of imported goods will show up in
both the CPI and the GDP deflator
Investment goods as measured in the GDP are purchased by:
business firms and households.
To reduce the money supply, the Federal Reserve:
buys government bonds
If the Federal Reserve wishes to increase the money supply, it should:
decrease the discount rate.
When the Fed makes an open-market sale, it:
decreases the monetary base (B).
The income of velocity of money increases and the money demand parameter k _________ when people want to hold ________ money
decreases; more
In this graph, capital-labor ratio k2 is not the steady -state capital -labor ratio because
depreciation is greater than gross investment
A characteristic of the production function whereby the marginal product of a factor falls as the amount of the factor increases while all other factors are held constant is called ______________.
diminishing marginal product
In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _________, the amount of investment spending depends on ________ , and the amount of government spending is determined
disposable income, the interest rate, exogenously