Econ-Macro Final Exam
Economics studies choices that arise from one fact. What is that fact?
wants exceeds the resources available to satisfy them
when a firm decides to produce organic fruit rather than non-organic fruit, it is answering the question of?
what
who gets the goods and services that are produced, answers the question of?
whom
The labor force participation rate is the percentage of the _____ who are members of the labor force.
working-age population
The core inflation rate is the annual percentage change in the _____ price index _____ the prices of food and energy.
PCE; excluding
In 2000, the Canadian economy was at full employment. Real GDP was $940 billion. The nominal interest rate was 7.0 percent a year, the inflation rate was 4.0 percent a yearcomma the price level was 1.10, and the velocity of circulation was 11.00. What was the quantity of money in Canada?
$94.0 billion
Michael is an Internet service provider. On December 31, 2012, he bought an existing business with servers and a building worth $300,000. During 2013, he bought new servers for $500,000. The market value of his older servers fell by $150,000.
-Michael's gross investment during 2013 was $500,000. -Michael's depreciation during 2013 was $150,000. -Michael's net investment during 2013 was $350,000. -Michael's capital at the end of 2013 was $650,000.
The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2016. The average household spent $60 on juice and $30 on cloth in 2016 when the price of juice was $2 a bottle and the price of cloth was $5 a yard. In the current year, 2017, juice is $4 a bottle and cloth is $6 a yard. Calculate the CPI and the inflation rate in 2017.
-The CPI in 2017 is 173.3 -The inflation rate in 2017 is 73.3%
The Bureau of Labor Statistics reported that in June 2003, the labor force was 147.8 million, employment was 138.5 million, and the working-age population was 221.3 million. Calculate the unemployment rate and the labor force participation rate for that month.
-The unemployment rate was 6.3 percent. -The labor force participation rate was 66.8 percent.
The Fed threw a lot of money at the financial crisis in 2008 to unfreeze credit markets and encourage economic activity. As part of its effort to keep the interest rate low, the Fed purchased government bonds worth $300 billion between March and September 2009. By October, the Fed held $770 billion in government securities, nearly double its pre-crisis total. Before the crisis, the Fed held mainly government securities, which it used to control the quantity of money in the economy. Now government securities make up just 35% of the Fed's balance sheet. When the Fed purchases government securities, bank reserves ______ and bank deposits ______. The quantity of money ______ and the nominal interest rate ______.
-increase; increase -increase; falls
the factor of production __________.
-land earns rent -labor earns wages -capital earns interest -entrepreneurship receives profit or incurs loss
In an economy, the currency drain is 10 percent of deposits and the desired reserve ratio is 5 percent of deposits. If the central bank buys $100,000 of securities on the open market, calculate the money multiplier.
7.3
______ good is used as a component of a final good. We ______ add the value of intermediate goods produced to the value of final goods to measure GDP.
An intermediate; do not
Aqua Springs makes the following four statements about bottled spring water. Which statement best describes the firm's quantity supplied in the bottled water market?
At a price of $1 gallon, we plan to sell 2,000 gallons per day.
Who in the following statements is a discouraged worker?
Dan is available to work but has not looked for a job in the past eight weeks because of repeated applications but no single offer.
Who in the following statements is a full-time worker and who is a part-time worker?
Dan works at Subway for 8 hours each day from Monday through Friday. Mary works at Starbucks' for 4 hours each day on weekends.
Which of the following statements describes a change in the quantity supplied and which describes a change in supply? I. Farms are selling less chicken because the price of turkey has increased. II. Farms are selling less chicken because the price of chicken has fallen. III. Farms are selling more chicken because the price of chicken has risen. IV. Farms are selling more chicken because the cost of chicken feed has fallen.
I and IV are changes in supply and II and III are changes in the quantity supplied.
Which of the following statements is about a normal good, which is about an inferior good, which is about both, and which is about neither? I. With incomes falling in the recession, people are buying more chicken. II. People are buying more beef now that incomes have increased. III. People are buying more chicken because the price of chicken has fallen. IV. With higher incomes people are switching from chicken to beef.
I is inferior, II is normal, III is neither, and IV is both
The Fed threw a lot of money at the financial crisis in 2008 to unfreeze credit markets and encourage economic activity. As part of its effort to keep the interest rate low, the Fed purchased government bonds worth $300 billion between March and September 2009. By October, the Fed held $770 billion in government securities, nearly double its pre-crisis total. Before the crisis, the Fed held mainly government securities, which it used to control the quantity of money in the economy. Now government securities make up just 35% of the Fed's balance sheet.If government securities make up just 35 percent of the Fed's assets, calculate the Fed's total assets. What effect did the Fed's purchase of $300 billion of government bonds have on the Fed's total liabilities?
If government securities make up 35 percent of the Fed's assets, then the Fed's total assets are $2,200 billion. The Fed's purchase of $300 billion of government bonds increased its total liabilities by $300 billion.
Indicate all the items in the following list that are not consumption goods and services and explain why. Item a: A hamburger Item b: A beach Item c: A tennis racquet Item d: An interstate highway Item e: A university Item f: A stealth bomber
Items b, d, e, and f because they are not items that individuals and governments buy and use up in the current period.
Lori is a student who teaches golf on the weekend and in a year earns $30 comma 000 after paying her taxes. At the beginning of 2015, Lori owned $2 comma 500 worth of books, DVDs, and golf clubs and she had $3 comma 000 in a savings account at the bank. During 2015, the interest on her savings account was $210 and she spent a total of $20 comma 000 on consumption goods and services. The market value of her books, DVDs, and golf clubs did not change. How much did Lori save in 2015? What is her wealth at the end of 2015?
In 2015, Lori saved $10,210 Lori's wealth at the end of 2015 is $15,710
M2 consists of _____ plus _____ and _____ deposits, _____, and other deposits.
M1; savings deposits; small time; money market funds
Which of the following statements illustrates structural unemployment?
Outsourcing resulted in many job losses in the mid 2000s.
Which of the following statements illustrates frictional unemployment?
Robin is quitting his current job to find another that has better prospects.
which of the following is an example of entrepreneurship?
Sam Walton created the multinational retail corporation brand Walmart in 1962
Stephen graduates from college and his income increases by $35,000. Nothing else changes. Stephen decreases the quantity of T-Shirts and chocolate chip cookies that he buys and increases the quantity of winter vacation that he buys. For Stephen, _______.
T-shirts and chocolate chip cookies are inferior goods
Which of the following statements illustrates fiscal policy?
The US government has proposed a hike in the corporate tax rate.
Suppose that banks had deposits of $ 600 billion, a desired reserve ratio of 5 percent, no excess reserves, and $ 20 billion in currency. What is the amount of commercial bank deposits at the central bank?
The amount of commercial bank deposits at the central bank is $10 billion.
The quantity of money grows at a rate of 15 percent a year, potential GDP grows at 3 percent a year, and the velocity of circulation is constant. Calculate the inflation rate in the long run.
The inflation rate in the long run is 12 percent a year.
The People's Bank of China lowered the required reserve ratio from 17.5 percent to 17 percent, noting that it remained much higher than in other countries. If the currency drain ratio in China is 10 percent of deposits and the desired reserve ratio equals the required reserve ratio, calculate the money multiplier in China and compare it with the U.S. money multiplier. Assume that the required reserve ratio in the United States is 10 percent, the required reserve ratio in China is 17 percent, and the currency drain ratio in both countries is 10 percent of deposits.
The money multiplier in China is 4.1 The money multiplier in the United States is 5.5.
The BLS reported that in December 2015, the labor force was 157.8 million, employment was 149.9 million, and the working-age population was 252.0 million. The BLS also reported that 18.3 percent of all employment in December 2015 was part time and that 6.0 million people worked part time for economic reasons. How many people worked part time for noneconomic reasons?
The number of people who worked part time for noneconomic reasons is 21.4 million.
When the Fed sells securities in the open market, the monetary base _______ and the interest rate _______.
decreases; rises
Which of the following statements by Tom demonstrates that his buying plans obey the law of demand?
The only thing that's changed is the price of textbooks: they've become more expensive and now I'm not buying as many.
In 2016, the economy of Singapore was at full employment. In Singapore dollars comma S$ comma real GDP was400 billion. The nominal interest rate was 1.8 percent a year, the inflation rate was negative 1.6 percent a yearleft parenthesis deflation right parenthesis comma the price level was 1.02, and the velocity of circulation was 0.76. Calculate the real interest rate. If the real interest rate remains unchanged when the inflation rate increases to 2 percent a year and then remains constant, how does the nominal interest rate change in the long run?
The real interest rate in 2016 is 3.4 percent a year. If the real interest rate remains unchanged when the inflation rate increases to 2 percent a year, the nominal interest rate increases to 5.4 percent a year.
The interest rate is 14% a year in Nigeria and 0.3% a year in Germany. The inflation rate is 9% a year in Nigeria and 0.1% a year in Germany. Calculate the real interest rate in Nigeria and Germany.
The real interest rate in Nigeria is 5 percent a year. The real interest rate in Germany is 0.2 percent a year.
Sally has a credit card balance of $2,000. The credit card company charges a nominal interest rate of 13% a year on unpaid balances. The inflation rate is 5% a year. Calculate the real interest rate that Sally pays the credit card company.
The real interest rate that Sally pays the credit card company is 8% a year.
The projected budget balance for Fiscal 2017 is a
deficit of $612 billion
Which of the following is the opportunity cost of attending a ball game?
The things you would have bought with what you spent on the ticket and bus fare getting to the game plus the things you would alternatively have done with your time.
In 2014, U.S. exports of goods and services are $2,335 billion and imports of goods and services are $2,899 billion. What is the value of net exports?
The value of net exports in 2014 is -564 billion dollars.
A central bank is ______. The ______ is the central bank of the United States.
a public authority that provides banking services to banks and governments and regulates financial institutions and markets; Federal Reserve System
Fiscal policy is the use of the federal budget to _______.
achieve the macroeconomic objectives of high and sustained economic growth and full employment
The GDP price index is an average of the current prices of _____ included in the GDP, expressed as a percentage of base year prices.
all the goods and services
Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during _____ and decreases during _____.
a recession; an expansion
Reserves consist of the currency in the _____ plus the balance on its _____ account at _____.
bank's vaults; reserve; a Federal Reserve Bank
Loanable funds are used to finance ______.
business investment, a government budget deficit, and international investment or lending
A market is an arrangement that brings _____ together and enables them to get information and do business with each other.
buyers and sellers
The two types of goods and services produced are _______. An example of _______.
consumption goods and services and capital goods; a consumption good is your iPad, and an example of a capital good is the pizza oven at a pizzeria
National debt is the amount of government _____ - _____ that has arisen from past _____.
debt outstanding; debt; budget deficits
A poor rice harvest will _____ rice and ____ its price.
decrease the supply of; raise
For consumers, hot dogs and burgers are substitutes. If the price of hot dogs decrease, then the demand for burgers will what?
decrease, and the demand curve for burgers will shift leftward
Depreciation is the _____ in the value of _____ that results from its use and from obsolescence.
decrease, capital
The Fed decreases the quantity of money. In the short run, the quantity of money demanded ______ and the nominal interest rate ______.
decrease; raises
A rise in the money wage rate when the economy is at potential GDP ______.
decreases aggregate supply because a rise in the money wage rate increases costs, so firms employ fewer workers
In the short run, when the price level in India increased India's aggregate supply ______.
didn't change, but the quantity of real GDP supplied increased
Sophie transfers $13,000 from her small time deposit at the Bank of Arkansas to her savings account. M1 _______ and M2 _______.
does not change; does not change
Marla is an associate at JCPenney who wants to work 40 hours week but works 25 hours a week because sales at JC Penney are slow. Marla works part time for _______ reasons. Joe is a server at Olive Garden who wants to work 40 hours a week but works 15 hours a week because the number of patrons at Olive Garden has decreased. Joe works part time for _______ reasons.
economic; economic
A model of the economy that shows a circular flow of _____ that result from decision makers' choices and the way these choices interact to determine _____ goods and services are produced is the circular flow model.
expenditures and incomes; what, how, and for whom
The functional distribution of income shows the distribution of income among ______ and the personal distribution of income shows the distribution of income among ______.
factors of production; households
The interest rate on a financial asset ______.
falls as the price of the asset rises
After heavy rain and low production, the weather improves and coffee growers enjoy bumper crops. The price of coffee _______ .
falls because the supply of coffee increases and the demand for coffee remains unchanged
The demand for a good decreases by 10 percent and the supply of the good decreases by 8 percent. The price of the good _______ because _______.
falls; demand decreases by more than supply decreases and when demand decreases the price falls
In the long run with the given change in the quantity of money, the value of money ______ and the price level ______.
falls; rises
U.S. gross domestic product is the market value of all the ______ produced ______ in a given time period.
final goods and services; within the United States
Real GDP is the value of the _____ goods and services produced in a given year expressed in terms of the prices in _____ year.
final; a base
Nominal GDP is the value of the _____ goods and services produced in a given year expressed in terms of the prices of _____ year.
final; the same
Gross domestic product (GDP) is the market value of all the _____ goods and services produced _____ a country in a given time period.
final; within
Prior to the Great Depression, the purpose of the federal budget was to _______.
finance the activities of the federal government
the benefit of something is ____.
gain or pleasure it brings
Land is the _______ that we use to produce goods and services.
gifts of nature or natural resources
Read Eye on the Environment and describe a tradeoff faced when deciding how to generate electricity and whether to use wind power. A tradeoff faced when deciding how to generate electricity and whether to use wind power is ______.
giving up other goods and services to get clean electricity delivered over long, high-cost transmission lines
A circular flow model shows the interrelationship between the ____ markets and the ____ markets.
goods; factors
Examples of capital include all of the following except _______.
google stock
Which of the following are included in the expenditure approach to measuring GDP?
government expenditure on goods and services; consumption expenditure; investment
when a firm decides to use skilled professionals to produce its output, it is answering the question of?
how
In May 2011, businesses cut hiring because the higher price of gas pushed up costs and higher food prices forced consumers to cut spending. Did businesses and consumers act in their self-interest or the social interest? According to the news clip, businesses acted _______ and consumers acted _______.
in their own self-interest; in their own self-interest
The Labor Department said that the economy added 146,000 jobs in November, and the unemployment rate fell to 7.7% from 7.9% in October. But it fell mainly because workers dropped out of the labor force. Explain how the new jobs change the labor force and the unemployment rate. New jobs ______ the labor force and _______ the unemployment rate.
increase or do not change; lower
A bumper wheat crop ____ wheat and ____ its price.
increase the supply of; lowers
When people move out of bonds and into money, the demand for money _____ and the interest rate on bonds _____.
increase, rises
A decrease in wealth will ______ the supply of loanable funds and ______.
increase; and shift the supply of loanable funds curve rightward
In the short run, when Indian universities increased the number of engineering graduates India's aggregate supply ______.
increased
In the short run, when U.S. firms moved their IT and data functions to India, India's aggregate supply ______.
increased
The Commerce Department reported that retail sales increased 1.3 percent in June. Net exports were up 0.8 percent in the first quarter and inventories held by businesses rose by 0.3 percent in June. Total sales by businesses rose 0.3 percent. Explain the effect of the rise in net exports on GDP.
increases GDP
Mildred and Robert are the only buyers in the market for DVDs.Mildred buys 6 DVDs when the price of a DVD is $6.00, 3 DVDs when the price of a DVD is $8.00 and 2 DVDs a month when the price of a DVD is $10.00. Robert buys 14 DVDs a month when the price of a DVD is $6.00, 6 DVDs when the price of a DVD is $8.00, and zero DVDs when the price of a DVD is $10.00. In the market for DVDs, the quantity demanded _______.
increases as the price falls
Explain how aggregate demand changes when government expenditure on national defense increases by $100 billion. Aggregate demand ______.
increases by more than $100 billion because the government expenditure has a multiplier effect
An increase in real GDP ______ the demand for money and changes in financial technology ______.
increases; can increase the demand for money or decrease the demand for money
As the economy moves out of the recession and real GDP increases, the demand for money ______. To keep the interest rate constant, the Fed will ______ the quantity of money.
increases; increase
As the price level rises, firms respond in the short run to the change in the real wage rate by ______.
increasing production
M1 consists of currency held by _____ and _____, _____, and _____ owned by individuals and businesses.
individuals; businesses; traveler's checks; checkable deposits
The Fed uses its policy tools to _______.
influence the interest rate and regulate the amount of money circulating in the United States by adjusting the reserves of the banking system
The federal funds rate is the _____ rate on _____ loans.
interest; interbank
Human capital _____ that people obtain from education, on-the-job training, and work experience. _____ that have been produced in the past and that businesses now use to produce goods and services is capital.
is the knowledge and skill; Tools, instruments, machines, buildings, and other items
Calculate the approximate number of years it will take for real GDP per person to double if an economy maintains an economic growth rate of 12 percent a year and a population growth rate of 5 percent a year.
it will take 10 years for real GDP per person to double
A bank's liquid assets consist of ______.
it's short term Treasury bills and overnight loans to other banks
The unemployment rate is the percentage of the people in the _____ who are unemployed.
labor force
Potential GDP is the value of real GDP when all the economy's factors of production - _____, _____, _____, and _____ - are fully _____.
labor; capital; land; entrepreneurial ability; employed
The productive resources that are used to produce goods and services - _____ are factors of production.
land, labor, capital, and entrepreneurship
By increasing the required reserve ratio, the Fed forces banks to hold a _______ quantity of monetary base and the interest rate _______.
larger; rises
By lowering the interest rate, the Fed makes it _______ costly for the banks to borrow monetary base and the interest rate _______.
less; falls
Households are individuals or groups of people _____ together.
living
The largest asset of commercial banks are _______.
loans
Globalization has reduced African poverty.
macroeconomics
the government must cut its budget deficit
macroeconomics
Motor vehicle production in China is growing by 10 percent a year.
microeconomics
apple sells 20 million iPhone 6's a month
microeconomics
coffee price rockets
microeconomics
The incomes earned by the factors of production are _______.
money flows from firms through factor markets to households
Fiat money are objects that are _____ because the law decrees or orders them to be _____.
money; money
A fall in the real interest rate will bring a ______ the demand for loanable funds curve.
movement down along
The demand for money is the relationship between the quantity of money demanded and the _______ when all other influences on the amount of money that people wish to hold remain the same.
nominal interest rate
The supply of money is the relationship between the quantity of money supplied and the _____.
nominal interest rate
Michelle is a student who wants to work 20 hours a week at Cost Cutters so she can attend school. Cost Cutters schedules her for 20 hours a week. Michelle works part time for _______ reasons. Florence is semi-retired and wants to work 15 hours a week at Walgreens so she can spend time with her grandchildren. Walgreens schedules her for 15 hours a week. Florence works part time for _______ reasons.
non-economic; non-economic
Currency consists of _____.
notes (dollar bills) and coins
The labor force is the number of people employed plus the _____.
number unemployeed
Which of the following events in the market for smartphones illustrates the law of demand? 1. The price of a smartphone falls. 2. Producers announce that smartphone prices will fall next month. 3. The price of a call made from a smartphone falls. 4. The price of a call made from a land-line phone increases. 5.An increase in memory makes smartphones more popular.
only event #1
Which of the following events in the market for timber beams illustrates the law of supply? 1. The wage rate of sawmill workers rises. 2. The price of sawdust rises. 3. The price of a timber beam rises. 4. The price of a timber beam is expected to rise next year. 5. Environmentalists convince Congress to introduce a new law that reduces the amount of forest that can be cut for timber. 6. A new technology lowers the cost of producing timber beams.
only event #3
Wealth is the value of all the things that people _____.
own
A stock is a certificate of _____ and claim to the _____ that a firm makes.
ownership; profits
The working-age population is the total number of _____ aged _____ years and over who are not in jail, hospital, or some other form of institutional care or in the U.S. Armed Forces.
people; 16
The business cycle is a _____ but _____ up-and-down movement of total _____ and other measures of economic activity.
periodic; irregular; production
The tax revenues in the federal budget include _______.
personal income taxes, Social Security taxes, corporate income taxes, and indirect taxes
The CPI tells us the ______ in the reference base period. The CPI in the reference base period is by definition equal to ______.
price level in a given period expressed as a percentage of the price level; 100
Loanable funds come from ______.
private saving, a government budget surplus, and international borrowing
An increase in expected profit, other things remaining the same, ______ the equilibrium real interest rate and ______ the equilibrium quantity of loanable funds.
raises; increases
The three ways in which the U.S. fiscal imbalance might be successfully addressed are _______.
raising income taxes, raising Social Security taxes, and cutting Social Security benefits
Aggregate supply is the relationship between the quantity of _____ supplied and the _____ when all other influences on production plans remain the same.
real GDP; price level
The flows of the services of the factors of production are _______.
real flows from households through factor markets to firms
When the nominal interest rate rises, the opportunity cost of holding money ______ and the quantity of money demanded ______.
rises; decreases
Economics is the _____ the choices that individuals, businesses, governments, and entire societies make as they _____, and the influences on those choices, and the arrangements that coordinate them.
social science that studies; cope with scarcities
A bond is a promise to pay _____ sums of money on _____ dates.
specified; specified
The three types of financial markets are ______.
stock markets, bond markets, and loans markets
The economy is at full employment when all unemployment is _______.
structural and frictional
The markets of wheat and rice influence each other because wheat and rice are______.
substitutes; so a higher price of rice will increase the demand for wheat
The institutions that make up the banking system are ______.
the Federal Reserve, commercial banks, money market funds, and thrift institutions
In 2007, the killer virus arrived in Hawaii, where almost all the queen bees used in the United States are bred. Bees are used in a third of the food we eat. Explain how a decline in the bee population affects the U.S. PPF.
the U.S. PPF rotates inward
suppose the price of a call on a smartphone rises. Explain the effect of this event on the quantity of smartphones demanded and on the demand for smartphones.
the demand for smartphones decreases
Financial capital is _______.
the funds used to buy physical capital
The PCE price index is an average of the current prices of _____ included in the consumption expenditure component of GDP, expressed as a percentage of _____ year prices.
the goods and services; base
The opportunity cost of holding money is ______.
the interest rate forgone on an alternative asset
human capital is ______?
the knowledge and skill that people obtain from education, on-the-job training, and work experience
All of the following are examples of scarcity except _______.
the light provided by the sun
As an economy moves up along its aggregate supply curve, ______.
the money wage rate and the money prices of other resources remain constant
Firms are institutions that organize _____ of goods and services.
the production
An open market operation is ______.
the purchase or sale of government securities by the Federal Reserve System in the open market
Demand is _____, when all other influences on buying plans remain the same.
the relationship between the quantity demanded of a good and the price of the good
suppose new technology lowers the cost of producing beef. Explain the effect of this event on the quantity of beef supplied and on the supply of beef
the supply of beef increases
Potential GDP is the value of real GDP when _______.
the unemployment rate equals the natural unemployment rate
Labor is
the work time and work effort that people devote to produce goods and services
Capital consists of _______.
tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services
The outlays in the federal budget include _______.
transfer payments, expenditure on goods and services, and debt interest
The New York Times reports that cruise lines have been slashing prices and cruise sales are up. It says this surge of interest tells us that despite the uncertain economic climate, people clearly need more fun in their lives and view their vacations as a valuable and necessary part of it. In deciding whether to take a cruise, would you face a tradeoff? You _____ face a tradeoff because _____.
would; you forgo something else that you might do
______ is an example of U.S. consumption expenditure.
your purchase of a coffee from Starbucks
Japan's real GDP was 543 trillion yen in 2005 and 553 trillion yen in 2006. Japan's population growth rate in 2006 was 0.0 percent. Calculate Japan's economic growth rate and growth rate of real GDP per person in 2006.
Japan's economic growth rate in 2006 was 1.8 percent. The growth rate of real GDP per person in Japan in 2006 was 1.8 percent.