Macro Economics
Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?
The demand for loanable funds shifted rightward
Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods.
The nominal interest rate was 6 percent and the inflation rate was 4 percent
Which of the following events would cause a movement upward and to the left along the demand curve for olives?
The price of olives rises
Gina, a U.S. citizen, works only in Bermuda. The value of Gina's production is included in
U.S. GNP and Bermudan GDP
A Minnesoty farmer buys a new tractor made in Iowa by a German company. As a result,
U.S. investment and GDP increases, but German GDP is unaffected.
Crowding out occurs when investment declines because
a budget deficit makes interest rates rise
If macaroni and cheese is an inferior good, then an increase in
a consumer's income will cause the demand curve for macaroni and cheese to shift left
Which of the following shifts aggregate demand to the left?
a decrease in the money supply
You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced
a nominal gain, but no real gain, and you paid taxes on the nominal gain.
Any item that people can use to transfer purchasing power from the present to the future is called
a store of value
Which if the following shifts both the short-run and long-run aggregate supply right?
an increase in capital stock
According to liquidity preference theory,
an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right.
If the economy is at point b, a policy to restore full employment would be
an increase in the money supply.
Which of the following events could explain the shift of the aggregate-supply curve from AS1 to AS2?
an increase in the world price of oil
Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?
as the price level increases, the interest rate rises, so spending falls.
In a system of 100-percent-reserve banking,
banks do not make loans
Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a
borrower or as a demander of funds
Mary worked part-time for her mother's business without pay. Larry was absent from work because he had the flu. Who is counted as employed by the BLS.
both Mary and Larry
Changes are nominal variables are determined mostly by the quantity of money and the monetary system according to
both classical dichotomy and the quantity theory of money
The natural unemployment rate includes
both frictional and structural unemployment
In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?
both the increased funding for states and the tax cuts
When conducting an open-market purchase, the Fed
buys government bonds, and in so doing increases the money supply.
Real GDP is the yearly production of final goods and services valued at
constant prices
The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called
credit risk
Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of
crystal to increase
Which list ranks assets from most to least liquid?
currency, stocks, fine art
A recession is always associated with
declining real GDP
If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $65 million worth of bonds to the public, bank reserves
decrease by %65 million and the money supply eventually decreases by $433.33 million.
The wealth effect stems from the idea that a higher price level
decreases the real value of households' money holdings
A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will
demand that required funds by selling bonds.
Social Security payments are
excluded from GDP because they do not reflect the economy's production.
When the dollar appreciates, U.S.
exports decrease, while imports increase.
Institutions that help to match one person's saving with another person's investment are collectively called the
financial system
The theory of efficiency wages provides a possible explanation as to way
firms may be included to keep their workers wages above equilibrium level
Unemployment that results because it takes time for workers to search for the jobs that best suits their tastes and skills is called
frictional unemployment
Under a fractional-reserve banking system, banks
generally lend out a majority of funds deposited.
Fiat money
has no intrinsic value
Gross domestic product measures
income and ependitures
Over the last few decades, Americans have chosen to cook less at home and eat at more restaurants. This change in behavior, by itself, has
increased measured GDP by the value added by the restaurant's preparation and serving of the meals.
If expected inflation is constant, then when the nominal interest rate increases, the real interest rate
increases by the change in the nominal interest rate
From 1975 to 1976,
inflation was 25% and output did not grow.
If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the
interest-rate effect
If the discount rate is raised then banks borrow
less from the Fed so reserves decrease.
If a reform of the tax laws encourages greater saving the result would be
lower interest rates and greater investment
In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,
market prices
When inflation rises, firms make
more frequent price changes. This raises their menu costs.
Juanita decides to hire some additional workers for her vinyl siding factory. The equilibrium wage is $14 per hour. Efficiency wage theory suggests that it is reasonable for Juanita to offer
more than $14 per hour, so as to attract a better pool of applicants.
The effect of an increase in the price level on the aggregate-demand curve is represented by a
movement to the left along a given aggregate-demand curve
When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a
movement to the right along the money demand curve
Other things the same, when interest rates rise,
people would want to lend more, making quantity of loanable funds supplied increase.
When supply and demand both increase, equlibrium
price may increase, decrease, or remain unchanged
In the long run, changes in the money supply affect
prices
In a closed economy, what does (Y-T-C) represent?
private saving
For an imaginary closed economy, T=$5,000, S=$11,000, and C=$50,000 and the government is running a budget deficit of $1,000. Then
private saving=$12,000 and GDP=$67,000
The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected
production is less profitable and employment falls
If real GDP doubles, and the GDP deflator doubles, then nominal GDP
quadruples
Assuming that a is positive, theories of short-run aggregate supply are expressed mathematically as
quantity of output supplied=natural rate of output+a(actual price level-expected price level)
The induction of a union into and industry
raises wages and lowers employment in that industry
Other things the same, a government budget deficit
reduces both public and national saving
Unemployment insurance
reduces search effort which raises unemployment
relative price variability
rises with inflation, leading to a misallocation of resources
Long-term bonds are
riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
As an alternative to selling shares of stock as a means of raising funds, a large company could, instead
sell bonds
When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve
shifts leftward, causing the value of money measured in terms of goods and services to rise
Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, the aggregate demand
shifts rightward by $62.5 billion
Which of the following agencies calculates the CPI?
the Bureau of Labor Statistics
The economies two most important financial markets are
the bond market and the stock market
If the CPI was 110 this year and 100 last year, then
the cost of the CPI basket of goods and services increased by 10 percent this year.
Ina closed economy, if Y is 10,000, T is 1,000, G is 3,000 and C is 5,000 then
the government has a budget deficit and investment is 2,000
In which of the following cases would it be necessarily be true that national saving and private saving are equal for a closed economy?
the governments tax revenues is equal to its expenditures
Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases
the inflation rate but not the growth rate of real GDP
If velocity and output were nearly constant, then
the inflation rate would be about the same as the money supply growth rate.
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
According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in
the interest rate
In the short-run, shifts in the aggregate-demand curve can cause fluctuations in
the level of output and in the level of prices.
The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates
the multiplier effect
What is measured along the vertical axis of the left-hand graph?
the price level
When computing the cost of the basket of good and services purchased by a typical consumer, which of the following changes from year to year?
the prices of goods and services
What is measured along the horizontal axis of the left-hand graph?
the quantity of money
What is measured along the vertical axis of the graph?
the real interest rate
The aggregate supply curve is upward sloping in
the short run, but not the long run.
In the calculation of the CPI, books are given greater weight than magazines if
the typical consumer buys more books than magazines.
An increase in government spending shifts aggregate demand
to the right. The larger the multiplier is, the farther it shifts.
M1 equals currency plus demand despite plus
traveler's checks plus other checkable deposits
According to the principle of monetary neutrality, a decrease in the money supply will not change
unemployment
Which of the following is not widely acknowledged problem with using the CPI as a measure of the cost of living?
unmeasured price change
Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?
unmeasured quality change
Which fo the following will both make people buy more?
wealth rises and interest rates fall.
If the reserve requirement is 15 percent a bank desires to hold no excess reserves and it receives a new deposit of $10, then this bank
will be able to make new loans up to a maximum of $8.50.
The cost of the basket in 2006 was
$130
For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?
$2 trillion and $1 trillion, respectively
If the reserve ratio is 4 percent, then $81,250 of new money can be generated by
$3,250 of new reserves
Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded.
$30 billion
Suppose the multiplier is 5 and the government increases its purchases by $10 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $20 billion. The extent of crowding out, for any particular level of the price level, is
$30 billion
A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to
$50
The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?
.04(1-.20)-.01
Suppose over some period of time the money supply tripled, velocity fell by half, and real GDP doubled. According to the quantity equation the price level is now
0.75 times its old value
The consumer price index was 200 in 2006 and 210 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?
1.5 percent
The nominal interest rate is 3.5 percent and the inflation rate is 2 percent. What is the real interest rate?
1.5 percent
If the reserve ratio is 10 percent, the money multiplier is
10
If the base year is 2004, then the CPI in 2004 was
100
The CPI was 128.96 in 2006, and the inflation rate was 24 percent between 2005 and 2006. The CPI in 2005 was
104
In June 2009 the BLS reported an adult population of 234.9 million, a labor force of 154 million and employment of 141.6 million. Based on these numbers the unemployment rate was
12.4/154
IF the base year is 2006, then the inflation rate in 2005 was
12.5%
If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is
125, and this indicates that the price level has increased by 25 percent since the base year.
Assume the figure charts possible outcomes from the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was
150
In June 2009 the BLS reported an adult population of 234.9 million, unemployment of 12.4 million, and employment of 141.6 million. Based on these numbers the labor-force participation rate was
154/234.9
A country's real GDP rose from 500 to 550 while its nominal GDP rose from 600 to 770. What was this country's inflation rate?
16.7%
If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is
2 and the equilibrium value of money is 0.5
The manager of the bank where you work tells you that the bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be
40/300
At the end of 2009 the relevant money-demand curve was the one labeled MD2. At the end of 2010 the relevant money-demand curve was the one labeled MD1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?
75 percent
Suppose that the economy produces 40,000 units of good A which sells at $4 a unit and 20,000 units of good B which sells at $5 per unit. Production of good A contributes
8/5 times as much to GDP as the production of good B
If there is excess demand for money, then people will
withdraw money from interest-bearing accounts, and the interest rate will rise.
If national saving in a closed economy is greater than zero, which of the following must be true?
All of the above are correct
The long-run aggregate supply curve shifts right if
All of the above are correct immigration from abroad increases the capital stock increases technology advances
Which of the following is included in the consumption component of GDP?
All of the above are included in the consumption component of GDP.
According to the classical dichotomy, which of the following is influenced by monetary factors?
All the above are correct nominal wages, the price level, nominal GDP
In a simple circular-flow diagram, households buy goods and services with the income they get from
All the above are correct (wages, rents, profits)
Which of the following correctly explains the crowding-out effect?
An increase in government expenditures increases the interest rate and so reduces investment spending.
If the economy starts at C and1, then in the short run, an increase in the money supply growth rates moves the economy to
B and 2
An increase in the money supply would move the economy from C to
B in the short run and A in the long run
Which of the following statements is correct?
Both the GDP deflator and the CPI can be used to measure inflation
Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.
Fran is saving, Miller is investing
Which of the following events would shift the supply curve from S1 to S2?
In response to tax reform, households are encouraged to save more than they preciously saved.
Given the following information, what are the values of M1 and M2?
M1=$850 billion, M2=$4,900 billion
If P=2 and Y=1000, then which of the following pairs of values are possible?
M=500 and V=4
Matt is waiting to be recalled to a job from which he was laid off. David was fired but hasn't looked for work during the last two months. Who does the BLS count as unemployed?
Matt but not David
A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move
Raises GDP
