macro exam 2 WMU SYED practice exam +

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ________ increase in consumption

$75

If the money supply equals 1,000, velocity equals 5, and real GDP equals 2,500, then the price level equals

(1000*5)/2500 = 2

If Alex deposits $1,000 from her paycheck into her checking account and, at the same time, increases her credit card balance by $1,500, then her saving is ________, and her wealth ________.

-$500; decreases by $500

According to Okun's law, when cyclical unemployment increases from 2 to 3 percent, the recessionary gap widens from ________.

-4 percent to -6 percent

If the natural rate of unemployment equals 5 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals

1 percent

If potential output for an economy equals $8 billion and actual output equals $7 billion, then this economy's output gap should be expressed as

1-(7/8) = -12.5 percent

In Macroland there is $10,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 10%, deposits in Macroland equal ________ and the money supply equals ________.

10,000,000/(.1*2) = $50,000,000; 50,000,000*1.1 = $55,000,000

The Boy Scouts have so far sold 100 tickets for their upcoming raffle, but they sell a constant additional 12 tickets every day. After three more days of selling tickets, the stock of tickets sold will be ________, and the flow of tickets sold will be ________.

136; 36

Pat earns $1,000 per week and spends $850 per week on living expenses, puts $50 in a savings account, and buys $100 worth of shares in a stock mutual fund. Pat's saving is ________, and Pat's saving rate is ________.

150, 15%

Bank C promises to pay a compound annual interest rate of 6 percent, while Bank S pays a 10 percent simple annual interest rate on deposits. If you deposit $1,000 in each bank, after 10 years, your deposit in Bank C equals ________, while your deposit in Bank S equals ________.

1791, 2000 a - 1000*(1.06^10) = 1791 b - 1000*.1*10 + 1000 = 2000

If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ________ and the money supply is ________.

200/.25 = 800 800+400 = 1200

If real GDP per person were equal to $2,000 in 1900 and grew at a one percent annual rate, what would be the value of real GDP per person 100 years later?

2000*1.01^100 = 5409.6 5410

If you left $2,500 on deposit with a bank promising to pay you a 6 percent compound annual rate of interest, then after 50 years your deposit would be worth approximately

2500*1.06^50 = 46050

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Autonomous expenditure equals

290

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5% paid annually fell to $981. The one-year interest rate must be

7% In equilibrium, both bonds have the same yield. Thus, $981*(1+i) = $1,000 *(1.05). Solving for i: 1+ i = $1,050/$981 and i = 0.07, or 7.0%

calculate gdp per capita

Average Labor Productivity / population

calculate planned aggregate expenditure

C + I^p + G + NX

The M2 measure of money consists of the sum of:

M1, saving deposits, small time deposits, and money market mutual funds

The dates of the "official" peaks and troughs of business cycles in the United States are determined by the:

National Bureau of Economic Research

A depression is

a particularly severe and protracted recession

If you post your car on eBay with a Buy-It-Now price of $1,800, you are using money as

a unit of account

money is

any asset used to make purchases

wealth equals

assets minus liabilities

The portion of planned aggregate expenditure that is independent of output is called ________ expenditure

autonomous

The four components of planned aggregate expenditure are

consumption, planned investment, government purchases, and net exports

Government policies intended to decrease planned spending and output are called ________ policies

contractionary

The M1 measure of money consists of the sum of

currency, checking deposits, and travelers' checks

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:

decrease

one hundred percent reserve banking refers to a situation in which banks' reserves equal 100 percent of their

deposits

the consumption function is a relationship between consumption and

disposable income

Savings deposits are ________ the M1 measure of money and ________ the M2 measure of money

excluded, included

In the Keynesian cross diagram, the ________ line shows the relationship between planned aggregate expenditure and output, and the ________ line represents the condition that planned aggregate expenditure and output are equal

expenditure, 45-degree

Saving is a(n) ________ and wealth is a(n) ________.

flow, stock

Recessions tend to be ________ by ________ the rate of inflation

followed; a decrease in

capital gains and capital losses

gains - increases in the value of existing assets losses - decreases in the value of existing assets

Other things equal, the combination of a ________ saving rate and a ________ real interest rate will result in the largest accumulation of wealth over time

high, high

Economists refer to the talents, training, and education of workers as

human capital

An increase in net taxes (taxes paid by the private sector to the government less transfer payments and interest payments made by the government to the private sector) will

increase public saving

A fiscal policy action to close an expansionary gap is to

increase taxes

Holding other factors constant, if new technology becomes available that allows machines to produce manufactured goods more quickly and with fewer defects, then the real interest rate will ________ and the equilibrium quantity of national saving and investment will ________

increase, increase

Usually an abundance of natural resources ______ average labor productivity.

increases

in the long run, increases in output per person arise primarily from

increases in average labor productivity

Most economists agree that ______ are important source of productivity improvements

increases in human capital, increases in physical capital, technological advances

Increasing the capital available to the workforce, holding other factors constant, tends to ________ total output while ________ average labor productivity

increasing, increasing

According to Okun's law, when the output gap is positive, cyclical unemployment

is negative

When government runs a budget deficit, it makes up the difference by

issuing government bonds

the three broad reasons for savng

life-cycle, precaution, bequests

Countries with small amounts of capital per worker tend to have ________ levels of real GDP per person and ________ levels of average labor productivity

low, low

three functions of money

medium of exchange, unit of account, store of value

the principle amount of a bond is the amount

originally lent

The main disadvantage of using money as a store of value is that

other assets pay relatively higher rates of interest than money

The duration of a recession is measured from

peak to trough

Economic activity moves from a period of expansion to a ________ and then moves into a period of ________ until it reaches a ________.

peak, recession, trough

planned agregate expenditure is total

planned spending on final goods and services

Saving for protection against unexpected setbacks-such as the loss of a job or a medical emergency-is called ________ saving

precautionary

the market value of a bond at a given point in time is the

price

The value of the marginal product of new capital increases when the

productivity of new capital increases

the measure economists use to infer that a country has achieved economic growth is

real GDP per person

A period in which the economy is growing at a rate significantly below normal is called a(n)

recession

Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries

reduce the cost of gathering information about borrowers

The change in wealth during a period equals:

saving + capital gains - capital losses

Changes in the growth rate of potential output and deviations of actual output from potential output are two logical explanations for

short-term economic fluctuations

Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps, are called ______ policies

stabalization

menu costs

the costs of changing prices

Firms will invest in new equipment whenever

the expected cost of the equipment is less than the expected benefit

The link between the money supply and prices is strongest in

the long run

The introduction of new technologies to production is ________ source of productivity improvement

the most important

compound interest is

the payment of interest on both the original deposit and all accumulated interest

net taxes equal the amount that

the private sector pays the government minus the amount the private sector receives from the government

Commercial banks create new money

through multiple rounds of lending.

Nominal GDP divided by the money stock equals

velocity of money

The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect

wealth

According to Okun's law, when cyclical unemployment increases by one percentage point, the recessionary gap ________ by ________ percent of potential output

widens, 2