Macro final exam
Structural unemployment will exist in an economy that is innovative.
Bob Wesley believes that structural unemployment should be eliminated in order for an economy to be healthy. In making this argument, which of the following relevant issues is he ignoring?
specialization and higher productivity.
By making exchange easier, money allows for
people on active military service are included as unemployed.
All of the following are problems in measuring the unemployment rate except that
contractionary; fall; fall
An attempt to reduce inflation requires _____________ fiscal policy, which causes real GDP to _________ and the price level to __________.
will not cause the aggregate demand curve to shift.
An increase in net exports that results from a change in the price level in the United States
decreases it
An increase in the amount of excess reserves that banks keep _____ the value of the real-world simple deposit multiplier
buying and selling of goods and services by obtaining a permit from the government.
An underground economy involves all of the following except
Decrease
As output (GDP) is increasing, the amount of cyclical unemployment would
Equilibrium price will fall and equilibrium quantity will rise
Assume that supply increases greatly and demand increases slightly. Which of the following will happen?
The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied will decrease.
Assume that there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation?
quantity demanded equals quantity supplied
At market equilibrium
automatic stabilizers.
Changes in taxes and spending that happen without actions by the government are called
the substitution bias
Changes in the CPI overstate the true inflation rate due to four "biases." If apple prices rise rapidly during the month while orange prices fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this consumer behavior?
a) average hours worked per week increased.
Increases in real GDP would overstate the well-being of a country over time if, over that time period, the a) average hours worked per week increased. b) crime rate decreased. c) price level increased. d) amount of pollution decreased.
Some factors of production are not equally suited to producing both goods or services
Increasing opportunity cost along a bowed-out production possibilities frontier occurs because
the highest valued alternative that must be given up to engage in an activity
Opportunity cost is defined as
is the level of real GDP attained when all firms are producing at capacity.
Potential GDP
the value of goods and services evaluated at base year prices.
Real GDP is
All of the above
Real GDP per capital is often used as a measure of generalwell-being. While increases in real GDP often do lead to increases in thewell-being of thepopulation, why is real GDP not a perfect measure of well-being?
b) human capital, physical capital, and technology.
Real GDP per hour worked is determined by a) consumption, human capital, and government spending. b) human capital, physical capital, and technology. c) physical and human capital. d) demand, government spending, and technology.
c) adjusted for price changes.
Real GDP refers to nominal GDP a) minus gifts to other countries. b) minus total unemployment compensation. c) adjusted for price changes. d) adjusted for unemployment changes.
M2
Savings account balances, small-denomination time deposits, and noninstitutional money market fund shares are a component of
It is decreasing for men and increasing for women.
Since 1948, which of the following best describes the trend in the labor force participation rate
of government policies that are retarding economic growth.
Some countries have larger underground economies than do other countries, because
consume a combination of goods that lies outside its own production possibilities frontier
Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following
$50 in excess reserves.
Suppose American Bank has $500 in deposits and $200 in reserves and the required reserve ratio is 10 percent. In this situation, American Bank has
No. GDP for 2021 includes only production that occurs during 2021.
Suppose a house is built and sold in the year 2010. If the house is resold in the year 2021, is the value of the house included in Gross Domestic Product (GDP) for 2021?
a lender will lose from the situation while a borrower will gain.
Suppose that the inflation rate turns out to be much higher than most people expected. In that case,
sell; reducing; increasing
Suppose that when the Federal Reserve decreases the money supply, households and firms initially hold less money than they want to, relative to other financial assets. Households and firms will then _____ Treasury bills and other financial assets, thereby _____ their prices, and _____ their interest rates.
discouraged workers
Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there aren't any jobs available. You would be counted as
an increase of $200 million.
Suppose the Fed buys $10 million of U.S. securities. Assume a reserve requirement of 5 percent and that all banks hold no excess reserves. The maximum potential impact of this action on the money supply will be
$300 billion
Suppose the reserve requirement is 5%. What is the maximum possible increase in checkable deposits if bank reserves increase by $60 billion.
b) Your mother's real wage decreased.
Suppose your mother's salary was $29,500 in 1992, when the CPI was 100. She earned $65,000 in 2011, when the CPI was 226. Which of the following statements is true? a) Your mother's purchasing power increased. b) Your mother's real wage decreased. c) Your mother's real wage and purchasing power remained the same. d) Your mother's nominal wage decreased.
the value of the services of the real estate agent
Suppose, in 2022, you purchase a house built in 2000. Which of the following would be included in the gross domestic product for 2022?
a) the nominal interest rate.
That stated interest rate on a loan is a) the nominal interest rate. b) the real interest rate. c) the rate of inflation. d) neither the nominal nor the real rate of interest envisioned by economists.
d) All of the above.
The "normal" underlying level of unemployment in the economy is a) the sum of structural unemployment and frictional unemployment. b) the full-employment rate of unemployment. c) the natural rate of unemployment. d) All of the above.
the outlet bias
The BLS collects price statistics from traditional full-price retail stores, which do not reflect the prices some consumers pay by shopping at discount stores or on the Internet. This is a description of which bias?
reduced
The Internet has _______ the size of menu costs.
the price level and the quantity of real GDP demanded by households, firms, and the government.
The aggregate demand curve shows the relationship between
government-spending effect, where a change in the price level affects government purchases.
The aggregate demand curve slopes downward due to all of the following reasons except the
microeconomics
The branch of economics which studies households and firms, make choices, interact in markets, and how government attempts to influence their choices is called
increase real interest rates and lower private investment.
The crowding-out effect implies that budget deficits will
a centrally-planned economy
The degree of government involvement in the economy is greatest in
the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate.
The difference between the nominal interest rate and the real interest rate is
excess reserves.
The difference between the total reserves that a bank holds and the amount that is required by law are called
A decrease in the price of corn
Farmers can plant their corn or soybeans in their fields. Which of the following would case the supply of soybeans to increase?
money that has little intrinsic value; it is neither backed by nor convertible to a commodity of value.
Fiat money is defined as
the government's use of taxes and expenditures to achieve macroeconomic policy objectives.
Fiscal policy refers to
the expansionary phase of the business cycle.
From a trough to a peak, the economy goes through
Household production and the underground economy.
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
the market value of all final goods and services produced in a country during a period of time.
Gross Domestic Product (GDP) is
The market value of all final goods and services produced in a country during a period of time, typically one year.
Gross domestic product is best defined as
growth in real GDP.
Growth in the economy is almost always measured as
They decrease the opportunity cost of job search.
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
All of the above
How does real GDP deal with the problem inflation causes with nominal GDP?
By multiplying the price times the quantity of each good and service sold in the current period, then adding the results
How is GDP calculated?
GDP is measured using market values.
How is GDP measured?
The unemployment rate would increase.
How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both discouraged workers and people who work part-time but would prefer to work full-time?
the supply of bananas has increased
If in the market for bananas the supply curve has shifted to the right, then
constant
If opportunity costs are ______, the production possibilities frontier would be graphed as a negatively sloped straight line
larger than nominal GDP in years before the base year.
If prices rise over time, then real GDP will be
The demand for loanable funds will increase.
If technological change increases the profitability of new investment to firms, which of the following will occur?
2.22%
If the CPI in 2002 was 180 and the CPI in 2003 was 184, what was the inflation rate between 2002 and 2003?
$54,348
If the CPI was 207 in 2009 and 225 in 2013, what wage would someone who earned a $50,000 income in 2009 have to earn in 2013 in order to keep their purchasing power constant?
the money supply curve will shift to the left, and the equilibrium interest rate will rise.
If the FOMC orders the trading desk to sell Treasury securities,
sell U.S. government securities.
If the Fed wants to decrease the money supply, it would
lower the interest rate paid on excess reserves.
If the Federal Reserve wants to expand the money supply, it could
the nominal interest rate will be lower than the real interest rate.
If the economy is experiencing deflation,
there is a movement down along a stationary money demand curve.
If the price level decreases,
the short-run aggregate supply curve will shift to the left.
If workers and firms across the economy adjust to the fact that the price level is higher than they had expected it to be,
decrease in demand
If you observed the price of a good decreasing and the quantity exchanged decreasing, it would be most likely caused by a
an increase in quantity demanded
If, in response to a decrease in the price of coffee, the quantity of coffee demanded increase, then economists would describe this as
spending by federal, state, and local governments
In calculating GDP, which levels of government spending are included in government purchases?
the interest rate they must pay to borrow the necessary funds.
In determining whether to borrow funds, firms compare the rate of return they expect to make on an investment with
the President and Congress; the Fed
In the United States, fiscal policy is the responsibility of _____ and monetary policy is the responsibility of _____.
falling real wages and resource prices that will increase SRAS, moving the economy back toward full employment.
In the aggregate demand/aggregate supply model, an economy operating below its long-run potential capacity will experience
C
In the equation that sums up the information on the components of GDP, Y = C + I + G + NX, which component is the largest?
An increase in real GDP An increase in the price level
In the graph of the money market, what could cause the money demand curve to shift to the right?
the price level to fall.
In the short run, a decrease in aggregate demand will cause
d) the percentage change in the GDP deflator from one year to the next.
The inflation rate is a) the percentage change in nominal GDP from one year to the next. b) the percentage change in real GDP from one year to the next. c) the percentage difference between nominal GDP and real GDP in any given year. d) the percentage change in the GDP deflator from one year to the next.
a) gains from trade, entrepreneurial discovery, and investment in physical and human capital.
The major sources of economic growth are a) gains from trade, entrepreneurial discovery, and investment in physical and human capital. b) price controls, heavy regulations, and high inflation. c) tariffs to protect domestic industries from foreign competition and budget deficits. d) a good climate, high levels of foreign aid, and abundant natural resources.
real interest rate.
The market for loanable funds determines the
the sum of structural unemployment and frictional unemployment.
The natural rate of unemployment is
The labor force participation rate
The percentage of the working-age population in the labor force is
Consumer Price Index (CPI).
The price index which is used to measure changes in the cost of living is the
the maximum attainable combinations of two products that may be produced in a particular time period with available resources.
The production possibilities frontier shows
is equal to the nominal interest rate minus the inflation rate.
The real interest rate
the change in equilibrium GDP divided by the change in taxes.
The tax multiplier equals
frictional, structural, and cyclical unemploment.
The three types of unemployment are
banks choose to hold some excess reserves rather than lending all excess reserves. some individuals prefer to hold cash instead of depositing their money in banks.
The total expansion in the money supply can be less than is predicted by the simple deposit multiplier if
structural because this type of unemployment requires retraining to acquire new job skills.
The type of unemployment most likely to result in hardship for the people who are unemployed is
the points outside the production possibilities frontier
The unattainable points in a production possibilities frontier are
shows the percentage of the labor force that is considered unemployed.
The unemployment rate
d) lower; more stringent
The unemployment rate in the United States is _____ and the requirements for receiving unemployment _____ than in Western Europe. a) higher; less stringent b) higher; more stringent c) lower; less stringent d) lower; more stringent
is inversely related to the money supply.
The value (purchasing power) of each unit of money
in the short run, an unexpected change in the price of an important resource can change the cost to firms.
The short-run aggregate supply curve slopes upward because of all of the following reasons except
federal funds rate.
To affect economic variables such as real GDP or the price level, the monetary policy target the Federal Reserve has generally focused on is the
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
Transfer payments are not included in GDP calculations because
Cyclical unemployment
Unemployment caused by a recession
nominal GDP was lower than real GDP in the 1990s.
Using the year 2000 as the base year, and assuming that prices during the 1990s were lower on average than prices in 2000, we can conclude that
Consumption, Investment, Government Purchases, and Net Exports
What are the four major components of expenditures in GDP?
Expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand.
What is an expansionary fiscal policy?
Money that is authorized by a central bank and that does not have to be exchanged for gold or some other commodity money
What is fiat money?
Government purchases are included in government expenditures.
What is the difference between federal government purchases and federal government expenditures?
The consumer price index is an average of the prices of the goods and services purchased by the typical urban family of four, whereas the producer price index is an average of the prices received by producers of goods and services at all stages of the production process.
What is the difference between the consumer price index and the producer price index?
Real GDP will rise and the price level will rise.
What is the impact of expansionary monetary policy on real GDP and the price level in the short run?
The informal sector is the sector of the economy where production is concealed from the government.
What is the informal sector, or underground economy?
will increase some but the impacts will be much larger for some groups of workers.
What is the relationship between the unemployment rate and enacting or increasing a minimum wage? When a minimum wage is enacted or increased across a country, the unemployment rate
Do the best they can based on their values and the information they have
When economists assume that people act rationally, it means they
allows people to value all goods and services in terms of one commodity (money), rather than in terms of several commodities.
When economists say money serves as a unit of account, they mean money
low, high
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is _____, so the quantity of money demanded will be _____.
low; high
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is _____, so the quantity of money demanded will be _____.
when interest rates are high
When is the opportunity cost of holding money higher?
medium of exchange.
When sellers are willing to accept money in exchange for goods and services, money is acting as a
real interest rates will fall, stimulating business investment and consumer purchases.
When the Fed increases the money supply, it will cause an increase in aggregate demand because
the natural rate of unemployment.
When the economy is at full employment, unemployment is equal to
transfer payments to increase and tax revenues to decrease.
When the economy is experiencing a recession automatic stabilizers will cause
b) structural unemployment.
When the skills of the unemployed don't match the skills required for a job, we have a) frictional unemployment. b) structural unemployment. c) cyclical unemployment. d) seasonal unemployment.
complements
Whenever the price of Good A decreases, the demand for Good B increases. Goods A and B appear to be
Y= C + I + G + NX
Which equation represents the relationship between GDP and the four major expenditure components?
c) the basket used by the Producer Price Index
Which market basket specifically targets intermediate goods?a) the basket used by the Consumer Price Index b) the basket used by the GDP deflator c) the basket used by the Producer Price Index d) All of the above.
If the Fed wanted to decrease the money supply, it could increase the interest rate paid on excess reserves.
Which of the following correctly indicates how the Fed could use the interest rate it pays commercial banks on their excess reserves to influence the money supply?
a change in the price level
Which of the following factors does not cause the aggregate demand curve to shift?
All of these are correct
Which of the following factors will cause the long-run aggregate supply curve to shift to the right?
A new house
Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics?
Fashion designers should be allowed to copyright designs to promote innovation
Which of the following is a normative economic statement
a) The purchase of a machine, factory, or house.
Which of the following is included in the economist's definition of investment? a) The purchase of a machine, factory, or house. b) The purchase of a share of stock. c) The purchase of a rare coin or deposit in a savings account. d) All of these.
Which of the following is included in the economist's definition of investment?
Which of the following is included in the economist's definition of investment?
A decrease in the unemployment rate
Which of the following is most likely a topic of discussion in macroeconomics?
An increase in the price level and a decrease in real GDP
Which of the following is most likely to result in the short run from a reduction in short-run aggregate supply?
an increase in the price level
Which of the following is most likely to result in the short run from an increase in short-run aggregate supply?
M2 is the best definition of money as a medium of exchange.
Which of the following is not a correct statement about M2?
low prices
Which of the following is not a monetary policy goal of the Federal Reserve?
How can scarcity be eliminated?
Which of the following is not a question that all societies must answer?
Reduce income inequality
Which of the following is not one of the monetary policy goals of the Fed?
c) Not looking for work and not in the labor force.
Which of the following is the best categorization of a discouraged worker? a) Unemployed but not in the labor force. b) Unemployed but not looking for work. c) Not looking for work and not in the labor force. d) Looking for work but not in the labor force.
The higher interest rates associated with expansionary fiscal policy attract foreign investors. To buy U.S. financial assets, foreigners bid up the real exchange rate, which in turn causes net exports to fall.
Which of the following is the best explanation of how expansionary fiscal policy can crowd out net exports?
c) real GDP per person
Which of the following is the best measure of the standard of living of the typical person in a country? a) the unemployment rate b) the inflation rate c) real GDP per person d) real GDP
Consumer spending on services is greater than the sum of spending on durable and nondurable goods.
Which of the following is true about the consumption component of U.S. GDP?
Purchases by state and local governments are greater than purchases by the federal government.
Which of the following is true about the government purchases component of U.S. GDP?
They are the inputs used to produce goods and services
Which of the following is true of resources?
The seven members of the Federal Reserve's Board of Governors. The president of the Federal Reserve Bank of New York. Four presidents from Federal Reserve banks other than the president of the Federal Reserve Bank of New York(rotating basis).
Which of the following people vote on monetary policy at the Federal Open Market Committee (FOMC) meetings?
If the money supply grows at a faster rate than real GDP, there will be inflation.
Which of the following predictions can be made using the growth rates associated with the quantity equation?
d) All of the above.
Which of the following statements is correct? a) Even when inflation is perfectly anticipated, some individuals will experience a cost. b) People on fixed incomes are particularly hurt by inflation. c) Anyone holding paper money will find its purchasing power decreasing each year by the rate of inflation. d) All of the above.
When the economy is in a recession, falling resource prices and declining interest rates will direct the economy back to full employment.
Which of the following statements is most consistent with the view that the economy has a self-corrective mechanism?
a) Minimum wage laws cause an increase in unemployment.
Which of the following statements is true? a) Minimum wage laws cause an increase in unemployment. b) Labor unions bargain for wages that are often below the market wage. c) Efficiency wages reduce the amount of unemployment. d) All of the above.
In the long run, changes in the price level do not affect the level of real GDP.
Which of the following statements is true?
advances in technology
Which of the following will most likely increase the economy's long-run aggregate supply?
a short-run increase in U.S. employment and output
Which of the following will most likely occur in the United States as the result of rapid growth in real income inJapan and Europe?
Resource owners will gain by discovering and employing their resources in ways that are highly valued by others
Which of the following will most likely occur under a system of clearly defined and enforced private property rights?
lower real incomes of the country's foreign trade partners
Which of the following will reduce aggregate demand?
lower prices of grains used to produce cattle feed
Which of the following would most likely decrease the price of beef?
c) the value of a used car at its sale price
Which of the following would not be counted as part of this year's GDP? a) the increase in the value of an antique automobile that was restored this year b) the value of a new automobile at its sale price c) the value of a used car at its sale price d) a family's replacement of a worn-out washing machine with a new one
a decrease in the real interest rate
Which of the following would not cause a shift in the short-run aggregate supply curve?
the money supply and the interest rate
Which of these variables are the main monetary policy targets of the Fed?
Government Price Index: an average of the prices paid by the government for goods and services used only by different government agencies.
Which one of the following is not a measure of the price level?
durable goods
Which types of goods are most likely to be affected by the business cycle?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
Because profits rise when the prices of the goods and services firms sell rise more rapidly than the prices they pay for inputs.
Why does the short-run aggregate supply curve slope upward?
Underemployed people are considered employed. It does not account for inaccurate responses to the Current Population Survey. Discouraged workers are not considered unemployed. It fails to account for illegal activities.
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
Every penny spent on a good or service must end up as someone's income.
Why must the total value of production in an economy equal the total value of income?
Yes. GDP for 2021 includes the market value of final goods and services. This includes real estate services.
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2021?
The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP.
Today, the typical American works fewer than 40 hours per week. In 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the population's economic well-being?
borrow funds from savers by selling Treasury securities.
Every time the federal government runs a budget deficit, the Treasury must
a fractional reserve banking system.
A banking system in which banks keep less than 100 percent of deposits as reserves is called
is operating on its production possibilities frontier
A country that produces a maximum possible combination of two goods using all of the resources available in the economy
inadvertently increases the severity of the business cycle.
A procyclical policy is one that
5
A reserve requirement of 20 percent implies a potential simple deposit multiplier of
is a table that shows the relationship between the price of a product and the quantity of the product supplied
A supply schedule
During deflationary periods, the real interest rate exceeds the nominal interest rate, and the real cost of borrowing increases.
During the late nineteenth century in the United States, many farmers borrowed heavily to buy land. During most of the period between 1870 and the mid-1890s, the United States experienced mild deflation. Many farmers engaged in political protests during these years, and deflation was often a subject of their protests. Why would farmers have felt burdened by deflation during this period?
are simplified versions of reality
Economic models
only the federal government.
Economists use the term fiscal policy to refer to changes in taxing and spending policies by
All of the above
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
a. Consumption expenditure b. Not included in GDP calculation c. Not included in GDP calculation d. Net export expenditure e. Investment expenditure f. Government expenditure
Indicate which component of GDP will be affected by each of the following transactions involving General Motors. a. You purchase a new Chevrolet Silverado pickup from a GM dealer. b. You purchase a 2017 (preowned) Chevrolet Silverado from a friend. c. GM purchases door handles for the Silverado from an auto parts manufacturer in Indiana. d. GM produces 1,000 Silverados in a factory in Flint, Michigan, and ships them to a car dealer in Shanghai, China. e. GM purchases new machine tools to use in its Flint factory. f. The state of Michigan builds a new highway to help improve access to GM's Flint plant.
people with incomes rising faster than the rate of inflation enjoy an increasing purchasing power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power.
Inflation can affect the distribution of income because
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed.
Inventories are part of investment and therefore included in GDP because
the costs to firms of changing prices.
Menu costs are
payments agreed to today but made in the future are in terms of money.
Money serves as a standard of deferred payment when
