Macro Midterm

Jessie has a budget of $50 and is attempting to draw her budget constraint for purchasing cookies and strawberries. At a maximum, she could consume 100 strawberries; she labels this point on the vertical axis of her budget constraint. If the slope of her budget constraint is -4, what is the price of a cookie?

$2.00

Suppose that there is $40,000 in checking accounts, $100,000 in savings accounts, $500,000 in cash and coins, $25,000 in traveler's checks, $0 in small-time deposits (such as CDs), $400,000 in the stock market, and $15,000 in money market mutual funds. Solve for M2.

$680,000

Through good economic years and bad, many European economies had unemployment rates hovering near _________ since the 1970s.

10%

Referring to the table above: A student has only a few hours to prepare for two different exams this afternoon. The above table shows alternative possible exam scores with three alternative uses of the student's time. The opportunity cost of scoring a 94 on the economics exam rather than a 77 is:

15 points on the history exam.

During the Great Depression of the 1930s, the unemployment rate reached more than _________ of the labor force.

25%

Suppose that out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what value would be recycled in the fourth round of this cycle? Answer this question using Keynesian economic analysis.

3.59

Suppose that out of the original 100 increase in government spending, 60 will be recycled back into purchases of domestically produced goods and services. Following this multiplier effect, what value will be recycled in the next round in the cycle? Answer this question using Keynesian economic analysis.

36

Durable goods and non-durable goods comprise approximately ________ of the supply side of the GDP.

45%

In 1990, the GDP of Canada was $680 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 85 U.S. cents. In 2000, the GDP of Canada was $1000 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 69 U.S. cents. By what percentage did the GDP of Canada increase from 1990 to 2000 in Canadian dollars?

47%

Of the world's population of 6.7 billion people, _________ are scraping by on incomes that average less than $2 per day.

5 billion

The basket of goods in the Consumer Price Index consists of about _________ products; that is, several hundred specific products in over __________ broad-item categories.

80,000; 200

A government collects $70 billion quarterly in tax revenue. Each year it allocates $15 billion to the justice system and $29 billion for the administrative costs. What percentage of its total annual tax revenue is left for allocation to the remaining categories of government spending?

84.29%

Consider the supply and demand graph above. If the current price in this market is $375, how many units will the producers be able to sell?

90

Refer to the figure above. When the economy moves from Point A to Point B in the diagram above:

All of the above occur.

Refer to the figure above. Along the production possibilities frontier, the most efficient point of production depicted is:

All points on the production possibilities frontier are equally efficient.

Consider the supply and demand for coffee, which is illustrated above. If this market operates with a price ceiling of $2.60, which area represents the consumer surplus earned in this market?

Areas A, B, and C

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic stabilizers

Consider the market for textbooks. What will likely happen to the price and quantity of textbooks if the price of paper decreases? Price will ________ and quantity will ______.

Decrease ... increase

In response to an economic downturn, Keynesian economics recommends ______.

Decrease tax rates and/or increased government spending

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

Fed rate

Andrea is a profit-seeking entrepreneur who recently opened a muffin shop in Atlanta. Every morning she produces 100 muffins and sells each muffin at $2. People love her muffins and by 9 AM every morning she is out of muffins and several customers are still in line wishing to buy muffins. What should she do if she wants her business to create an equilibrium production of muffins?

Increase prices and increase quantity supplied

A major cold weather outbreak hits Florida, destroying many crops. What will most likely occur in the market for oranges (which are produced in Florida)? Prices will _____ and quantity will _____.

Increase... decrease

Which of the following best describes the relationship between economic growth and literacy?

Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education.

If a country's GDP increases, but its debt also increases during that year, then what will happen to this country's debt/GDP ratio?

It could increase, decrease, or stay the same

If a country's GDP decreases, but its debt increases during that year, then what will happen to this country's debt/GDP ratio?

It will increase

Alan, Drew, and Kendra all pay $12,000 in taxes. However, their salaries are very different. Based on this information, what kind of tax system is employed in this society?

Regressive

___________are funds that the bank keeps on hand that are not loaned out or invested in bonds.

Reserves

Consider the supply and demand graph above. If the price in this market is $160...

Some consumers will be happy with the outcome in this market

Suppose there are two countries (the United States and Canada) that produce two goods (beer and computers). Which of the following is NOT possible?

The United States has the comparative advantage in beer and computers.

Which of the following is true?

The expansions and contractions of real world business cycles last varying lengths of time and often differ in magnitude.

Suppose the Federal Funds rate is 1.0%, the discount rate is 0.75% and the required reserve rate is 5.0%. If a bank needs to borrow, from what source will the bank borrow?

The federal reserve

In order for a market to operate at equilibrium, what does government typically need to do?

The government does not need to do anything. The market will reach equilibrium on its own.

Referring to the diagram above, which of the following is a true statement?

The increase in output (Q1 to Q2) may come about because of lower levels of taxation.

When the central bank decides it will sell bonds using open market operations:

The money supply decreases and general interest rates increase

Suppose that I have $2,000 in a bank in a checking account. I decide to take my money out of the bank and keep it at my house. As a result, what will happen to the money supply? Assume that banks choose to hold no excess reserves.

The money supply will decrease by more than $2,000

There is a shortage in the market for shoes. Therefore, ________.

The price of shoes must be lower than the market equilibrium

What do goods like gasoline, tobacco, and alcohol typically share in common?

They are all subject to government excise taxes.

Refer to the graph below. Based on the economic conditions depicted, what must be true about this economy? (Assume the economy always operates at the short-run equilibrium.)

Unemployment rates are higher than the natural unemployment rates

If imports exceed exports, as in recent years, then __________ exists

a trade deficit

In macroeconomics, the connection from inputs to outputs for the entire economy is called _______________.

an aggregate production function

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________.

an asset-liability time mismatch; diversify its loans

If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:

automatic stabilizers will decrease government spending and increase tax revenue.

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:

borrow for the short term from the central bank.

If the central bank increases the amount of reserves banks are required to hold to 20%, then:

both the money multiplier and supply of money in the economy will decrease.

Investment in human capital:

characterized by both b) and c).

Marginal thinking is best demonstrated by:

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

Suppose that the economy is already operating at potential GDP. Meanwhile, government budget deficits are increasing aggregate demand. If the central bank wants to keep inflation rates stable, what will it need to do?

contractionary monetary policy

The situation where the buying power of money in terms of goods and services increases is called:

deflation.

Refer to the graph shown below. At point B:

economic growth is low or even negative.

Assume that laws have been passed that require the federal government to run a balanced budget. However, policymakers generally prefer to use Keynesian policies. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.

expansionary fiscal policy; lead to a budget deficit

The effects of inflation are seen in:

goods, services, wages and income levels

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

government borrowing

Which of the government policies below is most unlikely to encourage per capita economic growth?

high taxes on companies that spend a lot on capital formation

According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.

increased spending by the government on health care

__________ implies that pressure for price increases reaches across ______________markets, not just one.

inflation; most

Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

marginal analysis

As a person receives more of a good, the _______________ from each additional unit of the good declines.

marginal utility

Jessie is attempting to draw her budget constraint for purchasing cookies and strawberries. At a maximum, she could consume 500 strawberries; she labels this point on the vertical axis of her budget constraint. At a maximum, she could consume 200 cookies; she labels this point on her graph. If the price of a cookie is $0.50 and her budget is $100, what is the price of a strawberry?

none of the above

Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:

out of the labor force.

The term "full employment GDP" is synonymous with which of the following?

potential GDP

The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future.

rational expectations

Which of the following is an example of one of the major categories in the overall CPI?

recreation

The market in which loans are bought and sold is called the

secondary loan market

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.

sunk costs

The most significant real economic cost of high unemployment is:

the potential goods and services that might have been produced but weren't.

GDP does not directly include:

the value of intermediate goods sold during a period.