macro

Which of the following does NOT add to US gross domestic product(GDP)?

The federal government sends a Social Security check to your grandmother.

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.

Which of the following is accurate?

Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.

Most financial assets other than money function as

a store of value, but not a unit of account nor a medium of exchange.

When a minimum-wage law forces the wage to remain above the equilibrium level, the result is

a surplus of labor and a shortage of jobs.

Refer to Figure 5.(M) Which of the following would cause the demand curve to shift from Demand A to Demand B in the market for oranges?

an announcement by the FDA that oranges prevent heart disease.

In December 1999 people feared that there might be computer problems at banks as the century changed. Consequently, people wanted to hold relatively more in currency and relatively less in deposits. In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands. These actions by the public

would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.

If the unemployment rate rises, which policies would be appropriate to reduce it?

increase the money supply, cut the taxes

Refer to Table 1. (M) The unemployment rate of Aridia

increased from 2010 to 2011 but decreased from 2011 to 2012.

Between 1980 and 1995 government debt as a percentage of GDP

increased from about 25% to 5o%

When aggregate demand shifts rightward along the short-run aggregate-supply curve, inflation

increases and unemployment decrease.

The Fed's policy decisions have an important influence on

inflation in the long run and employment and production in the short run.

Money is the most liquid asset available because

it is a medium of exchange.

When the Fed conducts open-market sales,

it sells Treasury securities, which decreases the money supply.

Frictional unemployment results from

job searching. It is often thought to explain relatively short spells of unemployment.

An adverse supply shock will shift short-run aggregate supply

left, making prices rise.

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

lenders and people holding a lot of currency

Economists would predict that, other things the same, the more generous unemployment compensation a country has, the

longer the duration of each spell of unemployment and the higher the unemployment rate.

Between 1880 and 1886, prices that were

lower than expected transferred wealth from debtors to creditors.

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

lower unemployment and higher output.

Refer to Figure 2.(M) The price ceiling

makes it necessary for sellers to ration the good.

According to classical macroeconomics theory, in the long run

monetary growth affects nominal but not real variables

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds.

An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers' preferences, it would

move the economy along the production possibilities frontier.

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

movement to the left along the money demand curve.

The Fed decreases reserves if it conducts open market

sales but not if it auctioned term credit.

When conducting an open-market sale, the Fed

sells government bonds, and in so doing decreases the money supply.

Most spells of unemployment are

short, but most unemployment observed at any given time is long term.

There is a...

short-run tradeoff between inflation and unemployment .

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a ____. The laptop's price is posted as $500. The $500 price illustrates money's function as a ____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ____.

store of value, unit of account, medium of exchange

Wages in excess of their equilibrium level help explain

structural but not frictional unemployment.

Because consumers can sometimes substitute cheaper goods for those that have risen in price,

the CPI overstates inflation.

An economist would be more likely to argue for reducing inflation if she thought that

the central bank had credibility and if bonds were usually indexed for inflation.

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that

the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 0.8 percent.

Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay?

the imposition of a binding price floor.

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

the inflation rate, but not the natural rate of unemployment.

When the wage is above the equilibrium level,

the quantity of labor supplied exceeds the quantity of labor demanded.

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

the short-run Phillips curve shifts left.

When an economy is operating inside its production possibilities frontier, we know that

there are unused resources or inefficiencies in the economy.

By about 1973, US policymakers had learned that

there is no trade-off between inflation and unemployment in the long run

In his famous article published in an economies journal in 1958, A.W Phillips

used data for the UK to show a negative relationship between the rate of change of wages in the UK and the UK unemployment rate.

All else equal, which of the following would increase the unemployment rate?

(iii) only

Proponents of rational expectations theory argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation and rational people understand that commitment and quickly lower their inflation expectations, the sacrifice ratio could be

0

Refer to Figure 28-4. If the government imposes a minimum wage of $2, how many workers will be unemployed?

0

Refer to Table 1.(M) The labor force of Aridia in 2010 was

1,600

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

1/R

Based on the quantity equation, if M=150, V=4 and Y=300, then P=

2

If a central bank reduced inflation by 4 percentage points and this made output fall by 5 percent for one year and 3 percent for another year and the unemployment rate rise 2.5 percent above its natural rate for one year and 1.5 percent above its natural rate for another year, the sacrifice ratio was

2

The nominal interest rate for a consumer loss lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

208

In the nation of Wiknam, the money supply $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

22.5 percent.

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is

25 percent.

Based on the quantity equation, if M=8,000, P=3, and Y=12,000, then V=

4.5

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 per year. Then the government can have a deficit of about

4.5 percent of GDP without raising the debt-to-income ratio.

The arguments of Friedman and Phelps would suggests that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible

will having rising unemployment for a while, but then return to the natural rate of unemployment.

Refer to Table 28-2. The labor force participation rate of Aridia in 2012 was

56.25%

Refer to Table 28-4. What is the adult labor-force participation rate in Meditor?

66.7%

The Bureau of Labor Statistics reported in 2005 that there were 50.40 million people over age 25 whose highest level of education was some college or an associate degree, 33.86 million of whom were employed and 1.27 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group?

69.7% and 2.5%

Refer to Table 28-3. How many adults were not in Baltivia's labor force in 2009?

7,400

Refer to Table 28-6. What is the U-5 measure of labor underutilization?

7.9%

Suppose the US unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

All of the above are correct.

Which of the following is correct?

All of the above are correct.

Which of the following is included in both M1 and M2?

All of the above are correct.

Governments may intervene in a market economy in order to

All of the above.

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand the central bank

would have to increase the money supply. This would move unemployment closer to the natural rate.

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Both the change in inflation and the change in unemployment are consistent with what a given short run Phillip curve implies.

Refer to Figure 35-7. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to

D and 4.

If a central bank were required to target inflation at zero, then when there was an unanticipated increase in aggregate supply the central bank

would have to increase the money supply. This would move unemployment further from its natural rate.

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

His real salary has fallen and his nominal salary has risen.

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of travelers checks. As a result of these changes,

M1 increases by $2,500 and M2 stays the same.

Which of the following helps to explain why the inflation fallacy is a fallacy?

Nominal incomes tend to rise at the same time that the price level is rising.

Which of the following is true concerning IRA's 401(k) and 403(b) plans?

Some people are not eligible to hold them.

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.

Which movie is an allegory about late 19th century monetary policy?

The Wizard of Oz

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price.

Economics variables whose values are measured in monetary units are called

nominal variables.

Samuelson and Solow believed that the Phillips curve

offered policymakers a menu of possible economic outcomes from which to choose.

Consider Paul's decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul's cost of going to college is

$123,000

If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to

$14,000 of new money.

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

$3,250 of new reserves.

Which of the following is NOT included in M1?

$500 in your saving account

the classical theory of inflation

All of the above are correct

Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then

All of the above are correct.

Refer to Figure 3.(M) Which of the following combinations of point are both efficient and attainable for this economy?

F, I, L

Which of the following is correct?

The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14 year terms.

Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy

a central bank

Studies have shown significant spending changes arise from interest rate changes after

a few months

Refer to Figure 1.(M) Suppose the figure shows the market demand for Big Box e-readers. Suppose the price of the leading competitor's e-readers, a substitute good, decreases. Which of the following changes would occur?

a shift from D1 to D2

The term market failure refers to

a situation in which the market on its own fails to allocate resources efficiently.

Inflation is defined as

an increase in the overall level of prices in the economy.

Sirius has just finished high school and started looking for his first job, but has not yet found one. Other things the same, the unemployment rate

and the labor-force participation rate both increase.

An economist claims that changes in information technology and unemployment insurance have reduced unemployment. Which of these changes affect frictional unemployment?

both the changes in information technology and unemployment insurance.

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

both the government debt and interest rates decreased between 2010 and 2011.

Some persons are counted as out of the labor force because they have made no serious or recent effort to look for work. However, some of these individuals may want to work even though they are too discouraged to make serious effort to look for work. If these individuals were counted as unemployed instead of out of the labor force, then

both the unemployment rate and labor-force participation rate would be higher.

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

can exploit a tradeoff between inflation and unemployment in the short run but not in the long run.

Which of the following lists is included in what economist call "money"?

cash

Higher inflation

causes firms to change prices more frequently and makes relative prices more variable.

A country is likely to have a higher sacrifice ratio if

contracts are longer, and people believe the central bank will not reduce inflation.

Which of the following increase when the Fed makes open market purchases?

currency and reserves

To increase the money supply, the Fed could

decrease the reserve requirement.

When the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money

demanded decreases.

The classical dichotomy refers to the idea that the supply of money

determines nominal variables, but not real variables.

The unemployment rate is computed as the number of unemployed

divided by the labor force, all times 100.

The Federal Reserve

does not have an inflation target; if it did it would likely be in the range of 2%.

Samuelson and Solow argued that when unemployment is high, there is

downward pressure on wages and prices.

Refer to Figure 30-1. If the current money supply is MS1 then,

equilibrium exists when the value of money is 2.

Proponents of zero inflation argue that a successful program to reduce inflation

eventually reduces inflation expectations.

The Federal Open Market Committee meets about

every six weeks.

During the mid and last part of the 1990's both inflation and unemployment were low. In general this could have been the result of

favorable supply shocks that shifted the short-run Phillips curve left.

Refer to Figure 4.(M) Which of the following pairs correctly identify W and Y?

firms and households.

Relative-price variability is "automatic" when

firms change prices only once in a while.

The economist A.W Phillips published a famous article in 1958 in which he showed a

negative correlation between the rate of unemployment and the rate of inflation.

Suppose that because of the popularity of the low-carb diet, bakeries need fewer workers and steak houses need more workers. The unemployment created by this change is

frictional unemployment created by sectoral shifts.

Over the past several decades, the difference between the labor-force participation rates of men and women in the U.S. has

gradually decreased.

Efficiency-wage theory suggests that paying

high wages might be profitable because they raise the efficiency off a firm's workers.

The main policy goal of the unemployment insurance system is to reduce the

income uncertainty that workers face.

Unemployment insurance tends to

increase frictional unemployment.

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?

increase in the price of grapes, an input to jelly.

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

increase the money supply growth rate which raises the inflation rate.

A permanent reduction in inflation would

permanently reduce shoeleather costs and temporarily raise unemployment

If the government collects more in tax revenue than it spends, and households consume more than they get in after-tax income, then

private saving is negative, but public saving is positive.

Reserves decrease if the Federal Reserve

raises the discount rate but not if it auctions more credit.

Currently a country has real GDP per person of 500. Raising capital per worker by one would increase output per worker by 4. Other things the same, which of the following long run combinations are consistent with the effect of this country increasing its saving rate?

real GDP per person is 520 and raising capital per worker by one would increase output per worker by 3.

Refer to The Economy in 2008. In the short-run the effects of the housing and financial crises

reduce the inflation rate and raise the unemployment rate.

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

right, and the sacrifices ratio will be high.

Consider two labor markets in which jobs are equally attractive in all respects other than the wage rate. All workers are equally able to do either job. Initially, both labor markets are perfectly competitive. If a union organizes workers in one of the markets, then the wage rates will tend to

rise for the union jobs and fall for the nonunion jobs.

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deffered retirement accounts?

the interest rate would increase and the quantity of loanable funds would decrease.

The position of the long-run Phillips curve depends on

the natural rate of unemployment, but not the inflation rate.

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

the price level would rise by 5 percent and real GDP would be unchanged.