Macro Final
If the MPC = 3/5, then the government purchases multiplier is
5/2.
Labor Force Statistics by Age. Suppose people in the adult population in a small country are classified based on their age. Labor Force Status less then 55 55 and older Number employed 400,000 100,000 Number unemployed 25,000 7,000 Number in Population 600,000 200,000 Refer to Labor Force Statistics by Age. In the proper order, which age group has the highest unemployment rate and which has the highest participation rate?
55 and older, under 55
Suppose that the adult population is 4 million, the number of unemployed is 0.25 million, and the labor-force participation rate is 75%. What is the unemployment rate?
8.3%
Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). nar001-1.jpg Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?
All of the above are correct.
Figure 27-2. The figure shows a utility function for Mary Ann. nar003-1.jpg Refer to Figure 27-2. From the appearance of the utility function, we know that
All of the above are correct.
The long-run aggregate supply curve shifts right if
All of the above are correct.
The opening of a new American-owned factory in Algeria would tend to increase Algeria's GDP more than it increases Algeria's GNP because
All of the above are correct.
Which of the following changes would decrease the present value of a future payment?
All of the above are correct.
Which of the following is a cause of the changing role of women in American society over the past several decades?
All of the above are correct.
Which of the following is consistent with the catch-up effect?
All of the above are correct.
Which of the following would a macroeconomist consider as investment?
Charlie builds a new coffee shop.
Which of the following is an example of financial intermediation?
Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.
Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?
The demand for loanable funds would shift right.
Upland has a population of 15,000, of whom 9,000 work 8 hours a day to produce real output of $342,000. Lowland has a population of 8,000, of whom 7,000 work 7 hours a day to produce real output of $171,500.
Upland has higher productivity and higher real GDP per person than Lowland.
Mary looks over reports on four of her workers. Jack made 25 baskets in 5 hours. Walter made 36 baskets in 6 hours. Rudy made 40 baskets in 10 hours. Sam made 22 baskets in four hours. Who has the greatest productivity?
Walter
Which of the following affected aggregate demand during the recession of 2008-2009?
a decline in reidential construction and a decrease in lending
Which of the following shifts the short-run aggregate supply curve to the right?
a decrease in the expected price level
Which of the following would be included as investment in the GDP accounts?
a firm increases its capital stock
Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. nar004-1.jpg Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is
between 6 percent and 8 percent.
People had been expecting the price level to be 220 but it turns out to be 223. In response Green Leaf Paper Company increases the number of workers it employs. What could explain this?
both sticky price theory and sticky wage theory
A decrease in government spending
decreases the interest rate and so investment spending increases.
When the interest rate decreases, the opportunity cost of holding money
decreases, so the quantity of money demanded increases.
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 the required funds by selling bonds.
Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, then
employment and production rise.
An increase in the interest rate causes investment to
fall and the exchange rate to appreciate.
If countries that imported goods and services from the United States went into recession, we would expect that U.S. net exports would
fall, making aggregate demand shift left.
Other things the same, as the price level rises, the real value of a dollar
falls, and interest rates rise.
An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level
falls, shifting aggregate supply right.
A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level
false
Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.
false
The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.
false
According to liquidity preference theory, investment spending would rise if the price level
fell, making the interest rate fall.
Institutions that help to match one person's saving with another person's investment are collectively called the
financial system.
In the early 1960s, the Kennedy administration made considerable use of
fiscal policy to stimulate the economy.
When the price level falls, people want to
hold less money and the quantity of aggregate goods and services demanded increases.
Suppose U.S.-based Intel Corporation builds and operates a new computer chip factory in Ghana. Future production from such an investment would
increase Ghanaian GDP more than it would increase Ghanaian GNP.
Keynes believed that economies experiencing high unemployment should adopt policies to
increase aggregate demand.
According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will
increase and the quantity of money demanded will decrease.
Suppose a country increases trade restrictions. This country would be pursing an
inward policy, which most economists believe has adverse effects on the economy.
Recession come at
irregular intervals. During recessions investment spending falls relatively more than consumption spending.
Technological knowledge
is a determinant of productivity.
In the long run, the level of output
is determined by supply-side factors.
Recently, Lisa's wealth increased by $500. If her wealth were to increase by another $500 in the near future, then her utility would increase, but not by as much as it increased with the recent increase to her wealth. Based on this information, Lisa's utility function
is upward sloping and her marginal utility function is downward sloping.
If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labor force the same,
its output and productivity would increase, but less than double.
The first three elements of a financial crisis are correctly represented as taking place in the following order:
large decline in some asset prices ® insolvencies at financial institutions ® decline in confidence in financial institutions
A reduction in U.S net exports would shift U.S. aggregate demand
leftward. In an attempt to stabilize the economy, the government could cut taxes.
In 2008, real GDP per person in Bangladesh was
less than it was in the U.S. in 1870.
Which of the following, other things the same, would make the price level decrease and real GDP increase?
long-run aggregate supply shifts right
Which of the following did the Fed do during the recession of 2008-2009?
lowered the federal funds rate and purchased securities and loans
Other things the same, an increase in the price level induces people to hold
more money, so they lend less, and the interest rate rises.
Suppose over the last year that the price of copper increased from ore increased from $1.70 a pound to $1.79 per pound. Over the same time a measure of the overall price level increased from 300 to 309. The price of copper increased by
more than inflation, and this means it became scarcer.
A 2009 article in The Economist noted that
most of the evidence on multipliers for government spending is based on changes in military expenditures.
People had been expecting the price level to be 170 but it turns out to be 165. Diamond Power Tools increases the number of workers it employs. What could explain this?
neither sticky wage theory nor sticky price theory
Aggregate demand shifts right if at a given price level
net exports rise and shifts right if the money supply increases.
The behavior of market prices over time indicates that natural resources are
not a limit to economic growth.
Greater scarcity of a natural resource is indicated
only by an increase in the price of the resource that is greater than the rate of inflation.
In the long run, changes in the money supply affect
prices.
Which of the following is not included in aggregate demand?
purchases of stock and bonds
Other things the same, a fall in an economy's overall level of prices tends to
raise the quantity demanded of goods and services, but lower the quantity supplied.
Over the last ten years productivity grew more slowly in Upland than in Lowland and the population and total hours worked remained the same in both countries. It follows that
real GDP per person grew more slowly in Upland than in Lowland.
Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
real wealth rises.
When we say that economic fluctuations are "irregular and unpredictable," we mean that
recessions do not occur at regular intervals.
Profits not paid out to stockholders are
retained earnings.
If the supply for loanable funds shifts to the left, then the equilibrium interest rate
rises and the quantity of loanable funds falls.
As the price level rises, the exchange rate
rises, so exports fall and imports rise.
During recessions
sales and profits fall.
Optimism Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. Refer to Optimism. In the long run, the change in price expectations created by optimism shifts
short-run aggregate supply left.
The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. In the long run, the change in price expectations created by the stock market boom shifts
short-run aggregate supply left.
In 1936, John Maynard Keynes published a book, The General Theory, which attempted to explain
short-run economic fluctuations.
Most economists use the aggregate demand and aggregate supply model primarily to analyze
short-run fluctuations in the economy.
Aggregate demand shifts left if
taxes rise and shifts left if stock prices fall.
We associate the term debt finance with
the bond market, and we associate the term equity finance with the stock market.
Which of the following is a good gauge of economic progress?
the growth rate of real GDP per person, but not the level of real GDP per person
When the price level falls
the interest rate falls, so the quantity of goods and services demand rises.
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-deferred retirement accounts?
the interest rate would decrease and the quantity of loanable funds would increase.
The long-run effect of an increase in government spending is to raise
the price level and leave real output unchanged.
Imagine the U.S. economy is in long-run equilibrium. Then suppose the value of the U.S. dollar increases. At the same time, people in the U.S. revise their expectations so that the expected price level falls. We would expect that in the short-run
the price level will fall, and real GDP might rise, fall, or stay the same.
Fundamental analysis is
the study of a company's accounting statements and future prospects to determine its value
Which of the following is a lesson concerning shifts in aggregate demand?
they contribute to fluctuations in output.
Consider the exhibit below for the following questions. Figure 33-1 nar002-1.jpg Refer to Figure 33-1. If the economy starts at A and there is a fall in aggregate demand, the economy moves
to C in the long run.
During periods of expansion, automatic stabilizers cause government expenditures
to fall and taxes to rise.
During recessions, the government tends to run a budget deficit.
true
If the marginal propensity to consume is 6/7, then the multiplier is 7.
true
Unemployment insurance and welfare programs work as automatic stabilizers.
true
Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?
$1(1 + .05)16
Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?
$1,123.50
Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,300. Refer to Scenario 34-1. For this economy, an initial increase of $500 in net exports translates into a
$2,500 increase in aggregate demand in the absence of the crowding-out effect.
In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was Alpha Cabinet Company's productivity?
1/8 cabinet per hour
During World War II, the economy's production increased about
100 percent and prices rose about 20 percent.
Nancy would like to double the money in her retirement account in five years. According to the rule of 70, what rate of interest would she need to earn to attain her objective?
14 percent
During recessions declines in investment account for about
2/3 of the decline in real GDP.
In 2009, the imaginary nation of Mainland had a population of 6,000 and real GDP of 120,000. In 2010 the population was 6,200 and real GDP of 128,960. Over the year in question, real GDP per person in Mainland grew by
4 percent, which is high compared to average U.S. growth over the last one-hundred years.
Suppose that during World War II the long-run aggregate supply curve shifted right. In order for price and output to have changed in the direction they did, what would have to have happened to aggregate demand?
It would have to have shifted left by less than aggregate supply shifted
The K-Nine dog food company is considering the purchase of additional canning equipment. They expect that adding the equipment will yield $200,000 at the end of the first year and $250,000 at the end of the second year and then nothing after that. At which of the following prices and interest rates would K-Nine buy the equipment?
K-Nine would buy the equipment in both cases.
The equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), where a is a positive number, represents
None of the above is correct.
What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?
None of the above is correct.
Which of the following statements is correct?
On average, indexed funds outperform managed funds.
Which of the following would cause prices and real GDP to rise in the short run?
aggregate demand shifts right
