Macro 211 UNL Final

If the economy grew at 3% this year and average prices increased _____, people would be better off this year than last year.

Less than 3%

If the government imposes binding rent control:

it may result in some landlords leaving the business because they cannot cover costs.

Use Figure Productivity an improvement in technology with everything else remaining unchanged is shown on the diagram as a movement from:

B to C

If the demand for tires goes down when the price of gas goes up, then tires and gas are:

Complements

For which decision would marginal analysis be MOST relevant?

How many hours I should study for my exam

When you are using money to purchase a new car, money is serving as a:

medium of exchange

Which item does NOT qualify as physical capital?

mineral deposits

An example of investment spending is the purchase of a:

new tractor by a farmer

For an economist, the cost of something is:

what you gave up to get it

A new fast-food restaurant offered a prize—a free meal (valued at $5) each week for a year—to its first 100 customers. Ramona camped out for 48 hours before the opening to be one of the first 100 customers, and she successfully obtained the prize. The cost to Ramona of obtaining the "free meal a week for a year" prize was:

whatever else she would have done with the 48 hours.

(Figure 7-1: Circular-Flow Model) Use Figure 7-1: Circular-Flow Model. What are net exports?

$0

Use Table National Income Accounts. The value of national savings is

$1.6 trillion

(Table: Competitive Market for Good Z) Use Table: Competitive Market for Good Z. The equilibrium price and quantity in this market are, respectively:

$10 and 30 units

If, during 2010, the Republic of Sildavia recorded investment spending of $3 billion, government purchases of $3 billion, consumer spending of $7 billion, imports of $5 billion, government transfers of $1 billion, and exports of $3 billion, Sildavia's GDP in 2010 was:

$11 billion

Use Figure Aggregate Expenditures: When real GDP is $700 billion, there will be a ____ in unplanned inventory investment.

$125 million increase

(Table: Real and Nominal Output) Use Table: Real and Nominal Output. Assuming year 3 is the base year, real output in year 4 is:

$140

(Figure: Market I) Use Figure: Market I. A surplus of the good will result if the price is:

$15

(Figure: The Labor Market) Use Figure: The Labor Market. The equilibrium wage rate is:

$15

(Table: Competitive Market for Good Z) Use Table: Competitive Market for Good Z. A surplus of the good will occur at a price of

$15

If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:

$15 billion

Use Table Loanable Funds At what interest rate will the market for loanable funds be in equilibrium?

5%

An open economy's GDP is $12 trillion this year. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion Exports are $1 trillion and imports are $3 trillion. How much is the next capital inflow?

$2 million

The Economy of Albania: What is the income-expenditure equilibrium real GDP?

$2,500 billion

If Jim's income is $80,000 and the price level is 4, then Jim's real income is:

$20,000

If the marginal propensity to consume is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by:

$250 million

(Table: Real and Nominal Output) Use Table: Real and Nominal Output. Nominal GDP in year 4 is equal to:

$280

Use Table: Aggregate Expenditures Curve III. Suppose that the consumption function shifts upwards by $100 Equilibrium real GDP will raise by:

$400

CDs at the start of the period and 15,000 CDs at the end then its inventory investment during the period was ____ CDs

$5,000

Suppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses the wheat to make flour and then hamburger buns, which it sells to Hamburger Heaven for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger Heaven uses the beef and buns to make 10,000 hamburgers, which are sold for $5 each. How much do these transactions add to GDP?

$50,000

Suppose that a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio. If that bank lends the maximum amount of money allowed, then the money supply (including the original deposit) increases by:

$500

Refer to Table: Balance sheet. IF the reserve ratio is 25%, deposits are:

$80,000

You and a coworker have been trying to develop a linear equation that describes the local household consumption function. Your co-worker has sent you a very short email that simply says he has finished the project and the consumption function is: C = 100 + 0.75(YD). Your job is to explain this result to your supervisor. According to this consumption function, how much consumption spending would occur if a household had a disposable income of $1,000?

$850

Given an annual interest rate of 2% the present value of a future payment of $1,500 to be paid in one year is:

- $1,470.59

Frances has a linear production possibility frontier when she produces tomatoes and green beans. If she uses all of her resources, she can produce 400 bushels of tomatoes or 800 bushels of green beans. Frances is NOT producing efficiently if she produces _____ bushels of tomatoes and _____ bushels of green beans.

- 200; 200

To lower the short-term interest rate, the Federal Reserve can:

- Buy Treasury bills

Congress increases personal income tax rates to balance the budget. Automatic stabilizers will ____ the ____ effect of the ____ in aggregate demand.

- Decrease; contractionary; decrease

A supply shock caused by an increase in the price of gasoline causes a(n)_____ in output and a(n) ____ in prices

- Decrease; increase

Determine which of the following statements are normative statements. (check all that apply)

- Everyone in the country should be covered by national health insurance. - The minimum wage is an important tool in fighting poverty and should be increased.

Which of the following will shit the aggregate demand curve to the left? (Check all that apply)

- Interest rates rise. - There is an economic boom overseas that raises the incomes of foreign households.

A high demand for money (as in Japan) would result from:

- Low crime rates and widespread lack of capacity to accept non-cash payments

A law requiring the federal budget to be balances each year would likely:

- Make business cycles more severe

Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. Based on this information, _____ has the comparative advantage in making brownies and _____ has the comparative advantage in making cookies.

- Mark; Julie

The demand for meals at a local Chipotle will shift to the left if:

- Saladworks offers a 10% discount coupon in the local newspaper

Economists call the revenue generated by the government's right to print money

- Seignorage

(Table: Wheat and Aluminum) Use Table: Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows, in tonnage, the maximum annual output combinations of wheat and aluminum that can be produced. Which choice represents a possible trade based on specialization and comparative advantage?

- The United States would trade 1 ton of wheat to Germany for 1.5 tons of aluminum.

Use Figure: Loanable Funds. Which scenarios might produce a new equilibrium interest rate of 5% and a new equilibrium quantity of loanable funds of $150 billions?

- There is an increase in capital inflows from other nations

A country is closed. It has no government sector and its aggregate price levels and interest rates are fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C=200+0.75YD, where YD is disposable income and C us consumption. Assume that planned investment equals 75. When real GDP equals $900

- Unplanned inventory investment is negative

Determine whether each of the following statements are true. (check all that apply)

- Very talented individuals, who can do most things better than most people, can benefit from specializing in doing one thing. - Resource scarcity is a major economic concern for all countries.

Which of the following are included in the Government Spending component of GDP? (check all that apply)

- Wages paid to a local police officer - the purchase of new tank for national defense

Which of the following items are included in GDP? (check all that apply)

- a computer produced in Seattle this year - a new car produced in Alabama, but not sold

Which of the following would cause the demand for money to shift to the left? (check all that apply)

- a decrease in Real GDP - a decrease in aggregate price level

Which factor is MOST likely to shift the supply of milk to the right?

- a decrease in the price of feed given to dairy cows

Suppose that the US government doubles its spending on health care. The ____ curve shifts _____, output_____ ad prices_____.

- aggregate demand; right; increases; increase

*Which of the following will shift the short-run aggregate supply curve to the left? (Select all that apply)

- air prices decline - workers become more productive

Which of the following is an assumption of the supply and demand model? (check all that apply)

- all products sold in the market are identical - many sellers - many buyers

Which statement is CORRECT?

- an economic situation is in equilibrium when no individual would be better off taking a different action

Which of the following individuals are counted as being unemployed in the headline unemployment rate? (check all that apply)

- an electrician who was fired two years, but still continues to look for work. - an out-of-work pastry chef who stopped looking for a job last week. - a banker who quit his job and is currently searching for a new one.

During periods of deflation ____ will be hurt and ____ will be helped

- borrowers; lenders

Suppose the government sets a price floor of $2.85 per bushel on corn when the current price is $2.55. This price floor will:

- cause a surplus of corm

Historical evidence has led economists to conclude that during periods of high inflation, the ___ model of the price level is a good approximation of reality because nominal wages and prices adjust more ____ than during periods of low inflation.

- classical, quickly

When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from using ____ money to using ____ money.

- commodity; commodity-backed

The natural rate of unemployment is:

- composed of structural and frictional unemployment.

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 _____.

- decrease government purchases; left

The money demand curve is ____ because a lower interest rate ____ the opportunity cost of holding money.

- downward slopping; decreases

GDP can be measured by adding (check all that apply)

- everyone's income earned within the borders of the country - the total value added at each stage of the production process for domestically produced goods - all expenditures on final goods and services produced in the US

(Figure: Market I) Use Figure: Market I. A price floor of $5 imposed on this market would:

- have no immediate effect

Long run economic growth is

- higher in countries with a strong rule of law and political stability.

In the circular-flow diagram, the product market is where:

- households buy goods and services

Which factor is most widely accepted measure of economic growth over time?

- increase in real per capita GDP

Refer to Figure Aggregate Supply if the economy is at point E, nominal wages will ____, and the short-run aggregate supply curve will shift ____ until actual potential is _____ potential output

- increase, left, equal to

If the Federal Reserve conducts an open-market purchase, bank reserves ____ and the money supply ____.

- increase; increase

Expansionary monetary policy ____ the money supply, _____ interest rates, and ____ consumption and investment spending.

- increases; decreases; increases

Stagflation is a combination of ____ unemployment and _____ inflation

- increasing; increasing

A Phillips curve implies a negative relationship between:

- inflation and unemployment.

According to the classical model of the price level, an increase in the money supply will cause ____ and ____ increase in real GDP.

- inflation; no long-run

Refer to Figure: Output Gap. If the economy is producing at Y1, then it has a(n)____ gap, as ____ real GDP exceeds ____ real GDP, and the Federal Reserve should use ____ monetary policy.

- inflationary; actual; potential; contractionary

If interest rates are at the zero lower bound:

- monetary policy is ineffective

In economies with persistently high inflation, an increase in the money supply will have:

- no effect on the real quantity of money, making money neutral in the long run.

Which of the following is a monetary policy tool available to the Federal Reserve? (check all that apply)

- open market operations - Changing the discount rate - Altering the required reserve ratio

Rising investors typically indicate ____ unplanned investment and a ____ economy

- positive; slowing

In terms of the production possibility frontier, the inefficient use of available resources is shown by:

- production at a point inside the production possibility frontier.

Suppose that political instability in the Middle East interoperates the supply of all. The_____ curve shifts _____, output_______ and prices ____.

- short-run aggregate supply; left; decreases; increase

Refer to the Figure: Equilibrium in the money market. If the interest rate is above equilibrium, there will be an excess ____ money and the interest rate will _____.

- supply of; fall

Mr. Freezee operates a fleet of ice cream trucks that drive around neighborhoods selling ice cream. He is trying to decide whether he should buy another ice cream truck to add to his fleet. He determines that one more truck will add $750 to his revenue but that the truck will also increase his costs by $1,000. Based on marginal analysis, Mr. Freezee decides:

- that he should not purchase the truck since the costs outweigh the benefits

(Table: Wheat and Aluminum) Use Table: Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows the maximum annual output combinations of wheat and aluminum that can be produced. Based on the table:

- the United States has a comparative advantage in wheat and an absolute advantage in wheat.

Quota limits are less than the market equilibrium quantity cause:

- the demand price to be above the supply price

Determine which of the following statements are positive statements. (check all that apply)

- the federal government spends half of its budget on national defense - the rate of unemployment is 4%

The basis of the circular-flow diagram is that:

- the flow of money into each market or sector is equal to the flow of money coming out of that market or sector

Which of the following events will shift the supply curve for TVs to the left? (check all that apply)

- the minimum wage increase by $2 - The price of TVs is expected to rise next month

The supply of loanable funds is ___ slopping because _____ respond to lower interest rates by ____ their quantity supplied of loanable funds.

- upward, savers, decreasing

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This the ____ effect it a reason the ____ curve slopes_____

- wealth; aggregate demand; downward

Diminishing returns to physical capital suggests that:

- when the amount of human capital per worker and the state of technology are fixed, successive increases in the amount of physical capital per worker leads to a smaller increase in productivity.

Economists claim that the unemployment rate can understate the true level of unemployment because the ONLY group that is included is:

- workers without jobs who have looked for work in the past four weeks

Use Figure: Consumption and Disposable personal income. The marginal propensity to consume is:

0.50

If you are paid $5,500 in one year on a $5,000 alone made today then your annual investment rate is _____%

10%

(Table: GDP II) Use Table: GDP II. Calculate the GDP deflator for 2011.

104

(Figure: Market I) Use Figure: Market I. If a price floor of $15 is imposed on this market and the government chooses to purchase the surplus, the government must buy _____ units of the good and spend a total amount of _____ on its purchase.

10; $150

(Scenario: Market Basket) Suppose a market basket consists of the following goods: 50 pens, 25 notepads, and 25 paperclips. Also assume the price per unit of these goods is as follows for the years noted and 2010 is the base year. What is the rate of inflation between 2010 and 2011?

11%

(Scenario: Market Basket) Suppose a market basket consists of the following goods: 50 pens, 25 notepads, and 25 paperclips. Also assume the price per unit of these goods is as follows for the years noted and 2010 is the base year. What is the value of the price index in 2011?

111

The natural rate of unemployment is 4%, and the economy is producing 95% of its potential output. Okun's law predicts an unemployment rate of _____%

6.5

If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no cabbages and 100 pounds of potatoes and if he faces a linear production possibility frontier, the opportunity cost of producing an additional pound of potatoes is _____ pound(s) of cabbage.

2

Refer to Figure: AD-AS Model and the short run Phillips curve. If the central bank increases the money supply so that aggregate demand shifts from AD1 to AD2 then the inflation rate will be:

2%

Real GDP equal $200 billion, the government collects 20% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. What is the value of the expenditure multiplier?

2.8

(Figure: The Labor Market) Use Figure: The Labor Market. What is the unemployment rate at an efficiency wage of $16, assuming all workers without a job are searching?

27%

(Table: Labor Force Data) Use Table: Labor Force Distribution. The unemployment rate is _____%.

3.85%

Sweden has real GDP per capita of $50,000, while Chile has real GDP per capita of $25,000. If real GDP per capita in Sweden grows at 2% and Chile's real GDP per capita grows at 4%, how long will it take for real GDP per capita in the two nations to converge?

35 years

India is growing at a rate of 9% per year and its real GDP per capita is about $3,500 where the United States is growing at a rate of 3% per year and its real GDP per capita is about $47,000. How long will it take India to double its real GDP per capita?

7.8 years

(Table: Market for Butter) Use Table: Market for Butter. If the government imposes a price ceiling of $0.90 per pound of butter, the quantity of butter actually purchased will be _____ million pounds.

9

(Table: Supply of Lemonade) Use Table: Supply of Lemonade. If the price of lemonade is $1 per cup, the total quantity of lemonade supplied will be _____ cups per day.

90

Refer to Figure: Inflationary and Recessionary Gaps. Which equation measures an inflationary gap?

Y3 - Y2

(Table: Bongos and Frisbees) Use Table: Bongos and Frisbees. Bill and Mickey make bongos and Frisbees. Who has the comparative advantage in producing Frisbees?

Mickey

(Figure: The Market for Candy) Use Figure: The Market for Candy. Equilibrium occurs at a price of _____, and the equilibrium quantity is equal to _____.

P2; Q3

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's grapefruit crop. Which panel BEST describes how this will affect the market for vitamin B12 tablets, which are a substitute in consumption for grapefruit?

Panel B

(Figure: Shifts in Demand and Supply IV) Use Figure: Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose half of the people in San Diego pack up and move to Colorado Springs. Which panel BEST describes how this will affect the supply of houses in San Diego?

Panel C

(Figure: Shifts in Demand and Supply IV) Use Figure: Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose oil becomes more expensive. Which panel BEST describes how this will affect the market for gasoline, which is made from oil?

Panel D

(Figure: The Effect of a Minimum Wage) Use Figure: The Effect of a Minimum Wage. Suppose the labor market is in equilibrium at E when the government imposes a minimum wage of WF. Structural unemployment, assuming all workers without a job are searching, will equal:

QS - QD

T/F? A quota below the equilibrium quantity in the market for shrimp will cause inefficiency because mutually beneficial transactions will not occur.

True

T/F? If real GDP falls when nominal GDP increases, then prices have increased.

True

The value of _____ is counted in GDP.

a new car sold by a dealer

If resources are scarce, it means that they:

are insufficient to provide enough goods and services to satisfy all human material wants and needs.

An economy is said to have a comparative advantage in the production of a good if it can produce that good:

at a lower opportunity cost than another economy.

A bank run can break a bank because:

banks cannot quickly convert illiquid loans into liquid assets without facing a large financial loss.

According to economic models of trade, when the United States and Mexico trade:

both Mexico and the United States will be better off.

Refer to figure: Changes in the money supply. If the supply of money shifts from S1 to S2 the Federal Reserve must have ______ Treasury bills in the open market

bought

Which asset is most liquid?

cash/money

Refer to Table: Monetary Aggregates. The value of M2 is: $3,355 billion. The Federal Reserve System is the ____ for the United States

central bank

Because of trade, a country may:

consume outside its production possibility frontier.

The law of demand implies that:

consumers will buy more at lower prices.

Refer to Figure: Short- and Long-Run Equilibrium. The government should ____ aggregate demand by____ taxes to close the _____ gap

expand; cutting; recessionary

(Figure: The Business Cycle) The movement from point B to C is called a(n):

expansion

Refer to Figure: Inflationary and Recessionary Gaps. The intersection of SRAS with AD in panel (a) indicates an economy

in a recessionary gap

A recent college graduate with a major in economics attends a job fair but has not yet found a job. This graduate is counted as a _____ unemployed worker.

frictionally

Discretionary fiscal policy refers to changes in:

government spending or taxes to close a recessionary or inflationary gap.

Sticky wages and prices occur:

in the short run

If the value of homes in University City increases and, as a result, the people of University City spend more, incomes in University City will:

increase

An economic model:

is a simplified version of reality used to understand real-world economic conditions

If the economy is in a recessionary gap,

nominal wages will fall and SRAS will shift to the right until the economy is at full employment.

An economy is efficient if it is:

not possible to produce more of one good without producing less of another good.

If the price of a commodity increases, you can usually expect the:

quantity supplied to increase

Crowding out hampers the economy by:

reducing private investment spending on physical capital

A survey reveals that, on a small island, initially 1,000 people have jobs, 200 people are unemployed but are looking for jobs, and 200 people are neither working nor looking for work. Suppose that 100 of the 200 people who weren't looking for work now begin looking for work and that half of the new entrants find a job. The unemployment rate:

rises to 19.2%

Abe starts exercising regularly, and after a few months he can do twice as much of everything. In a single day, Abe can now make 10 hamburgers or 8 milkshakes, rather than the 5 hamburgers and 4 milkshakes he made in the past. We now know that Abe's production possibility frontier has _____, but his opportunity costs of making milkshakes have _____.

shifted right; not changed

The MOST important driver for economic growth appears to be:

technological progress

Consider the market for iPads. What happens if a fantastic new alternative tablet is developed by Samsung and, at the same time, a boat carrying a large shipment of iPads is attacked by pirates and sunk?

the change in price is indeterminate and quantity decreases

Which of the following statements is true? (check all that apply)

the real cost of borrowing is the real interest rate

Menu costs are the:

the real costs of changing listed prices

Real GDP is:

the value of the production of all final goods and services adjusted for price changes