Macro Final Practice Test
About ____% of the world's population lives in countries whose population is poorer than the U.S. population was a century ago.
25
A fall in the market interest rate makes any investment project:
more profitable, whether funds for the project are borrowed or come from retained earnings.
A $100 million increase in government spending increases equilibrium GDP by:
more than $100 million.
An increase in government spending, all things equal, will cause the aggregate demand curve to:
shift to the right.
A general decrease in wages will result primarily in the _____ curve shifting to the _____.
short-run aggregate supply; right
One factor that does NOT explain why frictional unemployment exists is:
the minimum wage.
All else equal, if the required reserve ratio falls:
the money multiplier increases.
Government payments to households for which no good or service is provided in return are called:
transfer payments.
All other things equal, an increase in the demand for loanable funds would MOST likely be caused by a(n):
forecast by the Federal Reserve of solid economic growth.
Flows into financial markets are equal to the sum of:
foreign lending and purchases of stock plus private saving.
A price index:
- is normalized so that it equals 100 in the base year. - is used to measure the cost of a market basket across different years. - always includes a base year.
Economists generally agree that sufficiently high minimum wage laws:
cause unemployment.
A common strategy employed to reduce risk of a financial loss is to:
diversify financial assets, so that their risks of failure are unrelated.
Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. The government spending multiplier is:
5.
According to the rule of 70, if a country's real GDP per capita grows at an annual rate of 2% instead of 3%, it will take _____ additional years for that country to double its real GDP per capita.
11.67
If the rate of unemployment is 10%, and the labor force is 130 million, the number of unemployed workers is _____ million.
13
An increase in the capital stock would:
cause a movement to the right along a stationary production function.
An increase in the wealth of households, other things equal, will _____ the aggregate consumption function.
cause an upward shift of
A change in taxes shifts the aggregate _____ curve by _____ than a change in government purchases of goods and services and has a smaller effect on real GDP.
demand; less
According to the accelerator principle, there is a _____ relationship between _____ and planned investment spending.
positive; expected growth
Assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function is C = 200 + 0.75 YD , where YD is disposable income, and C is consumption, and that planned investment is $75. What is the income-expenditure equilibrium GDP for this country?
$1,100
Assume an open economy in which GDP is $12 trillion. If consumption is $8 trillion, government spending is $2 trillion, taxes are $0.5 trillion, exports are $1 trillion, and imports are $3 trillion, what is national savings?
$2 trillion
If you expect to get a substantial raise six months from now, and you are like most people, it will _____.
affect your current consumption
If interest rates on bonds rise, holding other things constant, stock prices will:
decrease.
If the economy is at potential output, and the Fed decreases the money supply, in the short run, the price level will likely:
decrease.
Net exports are calculated by subtracting:
imports from exports.
As the opportunity cost of holding money changes from _____% to _____%, the quantity of money demanded _____.
5; 3; increases
An increase in interest rates _____ the demand for money.
does not affect
An increase in the price level that is extremely rapid (say, 400% per year) is called:
hyperinflation.
An increase in the money supply will decrease interest rates in the short run but not affect interest rates in the long run because an increase in the money supply will eventually _____ prices and _____ money demand.
increase; increase
During deflation, the:
overall price level falls.
An increase in interest rates on business loans will change _____ investment spending.
planned
An example of infrastructure that promotes economic growth is _____.
public health services, such as vaccinations
In the circular-flow diagram, households:
supply resources.
Because revenue from personal income taxes automatically decreases as disposable income decreases, a recession causes:
the size of the multiplier to increase.
GDP calculated via factor payments includes:
wages, interest payments, rent, and profits.
In 1815, Mexico had a real GDP per capita that was _____ times that of Japan.
1.5
If the nominal interest rate is 4%, and the inflation rate is 1%, then the real interest rate is _____%.
3
A drop in the inflation rate is called:
disinflation
Consider an economy that produces only smartphones and laptops. Last year, 10 smartphones were sold at $800 each, and 5 laptops were sold at $1,000 each, while this year, 15 smartphones were sold at $900 each, and 10 laptops were sold at $1,100 each. Real GDP this year, using last year as a base year, is:
$22,000.
The reserve requirement is 20%. Oleg receives $1,000 as a graduation present and deposits the money in his checking account. The bank does NOT want to hold excess reserves. How much of the $1,000 deposit can the bank lend out?
$800
From 2006 to 2018, the average annual growth rate of total factor productivity in the United States was _____%.
0.4
If the cost of the market basket in the base year is $5,000, and the cost of the market basket in the current year is $5,100, the price index for the current year is ___ .
102
If a bank has deposits of $10,000 and reserves of $5,000, and the reserve requirement is 20%, its excess reserves are $_____.
3,000
Assume an economy has grown by 4% per year over the past 30 years. During the same period, the labor force has grown by 1% per year, and the quantity of physical capital has grown by 5% per year. Each 1% increase in physical capital per worker is estimated to increase productivity by 0.4%. Assume that human capital has not changed during the past 30 years. How fast has physical capital per worker grown?
4%
Assume an economy has grown by 4% per year over the past 30 years. During the same period, the labor force has grown by 1% per year and the quantity of physical capital has grown by 5% per year. Each 1% increase in physical capital per worker is estimated to increase productivity by 0.4%. Assume that human capital has not changed during the past 30 years. How much has the growth of physical capital per worker contributed as a percentage of total productivity growth?
53%
If monetary aggregates were ranked from most liquid to least liquid, the order would be:
M1 and M2.
_____ costs may be especially important in the tax system when inflation distorts the measures of income on which taxes are collected.
Unit-of-account
According to the accelerator principle:
a higher growth rate of real GDP leads to higher planned investment spending.
In the absence of a minimum wage, efficiency wages, or labor unions, a decline in the demand for labor will likely result in _____ if wages are flexible.
a lower level of employment but likely no change in the unemployment rate
Commodity-backed money is:
a medium of exchange with no intrinsic value.
If unplanned inventory investment is positive, then most likely:
aggregate expenditure on goods and services is less than forecast.
Goods that are sold in 2020 but produced in 2018:
are included in investment in 2018.
In an economy with no international trade, no government expenditure, no transfers, and no taxes, disposable income equals GDP. Therefore, it follows that:
as GDP decreases, planned aggregate spending decreases.
Diminishing returns to physical capital suggest that:
at some point, increasing the amount of physical capital per worker is not worth the cost of the additional capital.
If the required reserve ratio rises:
banks must keep a larger share of each deposit in reserve.
Financial intermediaries involved in shadow banking typically:
borrow money short term and lend or invest long term.
If a country imports more than it exports, and the government budget deficit increases, interest rates will _____, and the amount of borrowing will _____.
change unpredictably; increase
If the economy is at potential output, and the Fed increases the money supply, in the short run, interest rates will likely:
decrease
A decrease in the demand for loanable funds would MOST likely be caused by a(n):
decrease in perceived business opportunities.
In a simple, closed economy (no government or foreign sector), if the marginal propensity to consume increases, the marginal propensity to save will:
decrease.
The reserve requirement is 10%, and Olga withdraws $3,000 for travel money from her checking account. Assume that banks do not hold excess reserves and that the public holds only checkable bank deposits, that is, no currency. As a result of the withdrawal, excess reserves _____ by _____.
decrease; $2,700
Lucia withdraws $6,000 from her checking account to pay tuition this semester. Assume that the reserve requirement is 20% and that banks do not hold excess reserves. As a result of the withdrawal, loans _____ by _____.
decrease; $4,800
If the economy is at potential output, and the Fed _____ the money supply, the likely result will be a(n) _____ in investment spending and a(n) _____ in consumer spending in the short run.
decreases; decrease; decrease
Including intermediate goods in calculations of GDP is:
double counting.
During the Great Depression, the United States underwent a movement _____ along the short-run aggregate supply curve; during the 1979 oil crisis, the United States underwent a _____ shift of the short-run aggregate supply curve.
down; leftward
Government borrowing will not crowd out private investment spending if unemployment is _____ and the fiscal expansion causes a(n) _____ in incomes and a(n) _____ in saving at each interest rate.
high; increase; increase
As a result of a decrease in the value of the dollar in relation to other currencies, U.S. imports decrease and exports increase. Consequently, there is a(n):
increase in aggregate demand.
An increase in the demand for money would result from a(n):
increase in the price level.
An autonomous increase in aggregate spending _____ real GDP by _____.
increases; more than that amount
A firm does NOT want to borrow money for a project when the:
interest rate is higher than the expected rate of return on the project.
An example of human capital is a person's:
job skills.
Changes in the money supply have no _____ effects on the interest rate because when the _____ changes, the demand for money changes to offset the short-run changes in the money supply.
long run; price level
If banks were required to keep 100% of deposits in reserves, they could:
make no loans.
Assuming a positive interest rate, the dollar amount of a future payment is _____ its present value.
more than
If government debt is increasing, but GDP is increasing faster, the:
ratio of government debt to GDP is falling.
Financial markets spread the potential gains and losses of borrowing and lending among many firms and individuals, decreasing overall uncertainty. The financial system thereby:
reduces risk.
Crowding out hampers the economy by:
reducing private investment spending.
Examples of fiscal policy do NOT include:
reducing the interest rate by increasing the money supply.
An example of an automatic stabilizer that takes effect when the economy contracts is a:
rise in government transfers as more people receive unemployment insurance benefits.
Efficiency wages are:
set above the equilibrium wage to incentivize better performance.
A budget surplus exists when:
taxes are greater than government spending.
Banks are illiquid because:
their loans are less liquid than their deposits.
Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $700 billion:
there is a recessionary gap.
Government spending will NOT crowd out private spending if:
there is a recessionary gap.
An example of physical capital is a:
truck that a company purchases for deliveries.
Assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function is C = 200 + 0.75 YD , where YD is disposable income, and C is consumption, and that planned investment is $75. If real GDP is $1,100:
unplanned investment equals zero.
