MACRO FINAL (ECON2453)
The broadest-based price index available is the
GDP deflator
The equation for GDP using the expenditure approach is
GDP=C+I+G+EX-IM
Per capita gross national income (GNI) decreases when
GNI does not change and the population increases
Currency held outside banks + demand deposits + travelers checks + other checkable deposits
M1
The principal that irrelevant detail should not be included in a model is known as
Ockham's razor
The ____________ of 1993 sought to reduce the federal deficit by $504.8 billion by 1998
Omnibus Budget Reconciliation Act
The _________ ____________ can change the quantity of money in the economy
Treasury Department
Saving equals
Y-C
When the government sector is included in the income-expenditure model, the equation for aggregate income is
Y=C+I+G
John's optimal money balance has increased. This could have been caused by
a decrease in the interest rate
An intended goal of contractionary fiscal and monetary policy is
a decrease in the level of aggregate output
Which of the following is an example of an easy monetary policy?
a decrease in the level of aggregate output
An example of expansionary monetary policy is
a decrease in the required reserve ratio
The price system
-automatically distributes scarce goods -there is a deadweight loss
The federal reserve system consists of ____ Federal Reserve Banks.
12
What definition of unemployment would you expect classical economists to use?
Anyone who is willing to work at the current market wage, but has not yet been able to find employment
In an economy, when the price level falls, consumers and firms buy more goods and services. This relationship is represented by the
aggregate demand curve
Employment tends to rise when
aggregate output rises
The functioning of the labor market primarily affects the shape of the
aggregate supply curve
The quantity of output supplied at different price levels is represented by the
aggregate supply curve
Gross National Product is the total market value of
all final goods and services produced by resources owned by a country, regardless of who owns the resources
The production possibility frontier is a graph that shows
all the combinations of goods and services that can be produced if all of society's resources are used efficiently
A loan made by a bank is considered ____ of that bank
an asset
The time it takes the Fed or Congress to change economic policy is
an implementation lag
Which of the following will most likely cause a decrease in the quantity of money demanded?
an increase in the interest rate
An example of tight monetary policy is
an increase in the reserve equipment
If output is less than planned aggregate expenditure, there will be
an unplanned decrease in inventories
Normative economics is an approach to economics that
analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred courses of action
Positive economics is an approach to economics that
applies statistical techniques and data to economic problems
Inflation and Unemployment
are a focus of macroeconomics
The "law of demand" implies that
as prices rise, quantity demanded increases
net worth is
assests - liabilities
The total of consumer plus producer surplus is greatest
at the market equilibrium
A movement down the aggregate supply curve is caused by a(n)
decrease in the price level
If there is a surplus in the money market, the Fed can eliminate it by
decreasing money supply
a commercial bank lists
deposits as liabilities
In a period of high unemployment, the Fed would most likely
ease monetary policy
4 criteria frequently used in judging the outcome of economic policy
efficiency, equity, stability, economic growth
when the interest rates rise, bond values
fall
A boom in the stock market affects the economy because
firms invest more as demand grows
in an output market
firms purchase resources
Fixed weight indexes
generally become less accurate the farther in time they are from the base year
Net investment equals
gross investment minus depreciation
In input or factor markets
households supply resources
What is held constant along the demand curve?
income
In a free market system, the amount of output that any one household gets depends on
income & wealth
If planned injections exceed leakages, output will
increase
Inflation is a(n)
increase in the overall price level
The Federal Reserve's policy to "lean against the wind" means that
interest rates are increased gradually as the economy expands
Personal income
is always equal to national income
When a government runs a deficit
its debt increases
According to the text, in reaction to the stock market boom of 1995 to 2000, the FED
kept interest rates higher than they would have anyway
Changes in the ____ market affect the shape of the short run aggregate supply curve
labor
Your M1 money demand is the amount of money you wish to
leave outside any interest-bearing account
During periods of stagflation, a decrease in the money supply will
lower inflation and the level of output
The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units is
microeconomics
The interest rate is determined in the
money market and influences the level of planned investment and thus the goods market
If the demand for coffee decreases as income decreases, coffee is a(n)
normal good
the money market and the goods market are linked through the impact of the interest rate on
planned investment
The critics of stabilization policy such as Milton Friedman argue that monetary policy is comparable to "the Fool in the Shower." This means that
policy initiatives are often destabilizing because of time lags
To isolate the impact of one single factor, economists invoke the assumption of
post hoc, ergo prompter hoc
The level of aggregate output that can be sustained in the long run without inflation is known as
potential output
The basic coordinating mechanism in a free market system is
price
An efficient economy is an economy that
produces what consumers demand and does so at the least possible cost
Equilibrium is when
quantity demanded equals quantity supplied
The legislative intent of the Gramm-Rudman-Hollings Act was to
reduce the federal deficit by a set amount each year
The aggregate supply curve
relates output with the price level
A government's debt is reduced when it
runs a surplus
Business Cycle refers to
short-term ups and downs in the level of economic activity
Suppose the equilibrium wage rate in the labor market is $10 and the demand for labor increases. If wages are sticky, there will be a
shortage of labor and the wage rate stays the same
An individual who cannot find a job because his or her job skills have become obsolete is an example of
structural unemployment
If you hear a person saying "I lost my job because I was replaced by a machine," you should conclude that this person is __________ unemployed
structurally
The government implements fiscal policy when it changes
taxes and/or spending
The graph that shows the relationship between the aggregate quantity of output supplied by all the firms in an economy and the overall price level is
the aggregate supply curve
the MPC is
the change in consumption divided by the change in income
The MPS is
the change in saving divided by the change in income
In economics, investment always refers to
the creation of capital
Aggregate demand rises when the price level decreases because the lower price level causes
the demand for money to fall causing interest rates to fall
Consumer surplus is
the difference between the max a person is willing to pay and current market price
An increase in government spending will completely crowd out investment
the economy is operating at capacity
Output is determined in
the goods market and also influences money demand and the interest rate
Monetary policy affects the goods market through its effect on
the interest rate and planned investment
The fraction of a change in income that is consumed or spent is called
the marginal propensity to consume
The unemployment rate is
the number of unemployed divided by the population
If interest rates fall, then
the price of fixed-income securities rise
The tax multiplier is
the ratio of the change in the equilibrium level of output to the change in taxes
The base year of an index is
the year chosen for the weights in a fixed weight procedure
In a period of high inflation, the Fed would most likely
tighten monetary policy
According to the theory of comparative advantage, ____ raise(s) productivity by lowering opportunity costs
trade & specialization
What is the largest expenditure source in the government's budget?
transfer payment
Suppose the wage rate in the labor market is $15 and the demand for labor decreases. If wages are sticky,
unemployment increases
A factor market is
where resources are exchanged
Using the saving/investment approach to equilibrium, the equilibrium condition can be written as
C+I=C+S
Redistribution of income from the rich to the poor is achieved by a tax system that requires taxes to rise with income. Which of the following criteria best explains the goal of this tax system?
Equity
A firm issues bonds to
borrow money
Fiscal policy affects the goods market through
changes in taxes and government spending
The single largest expenditure component in GDP is
consumption
In a closed economy with no government, aggregate expenditure is
consumption plus investment
When economists refer to "tight" monetary policy, they mean the Federal Reserve is taking actions that will
contract the money supply
One way to control rising food prices and global inflation concerns is with
contractionary monetary supply