Macroeconomic Cumulative Final

Economic growth of future total output (GDP) depends largely upon the growth rate of the labor force and the growth rate of productivity. List three sources of productivity improvements/gains. Then give an example of each source to explain how it can increase the growth of future GDP. (T3)

1. Higher skill - Businesses could hire people or train people to have a higher skill. A more skilled person can produce something quicker and better than other employees. Thus increasing total output and economic growth. 2. Improved Management - An improved management can improve or incentivize workers to work harder. A managers job is to make/run his/her employees as efficiently and effectively as possible. So one way a manager can do that is to incentivize employees to work harder by increasing their pay as they increase their output. 3. Technology - Technology can increase economic growth by being able to use machines and robots to produce output efficiently and effectively at a cheaper price. Because employers don't have to pay robots or machines.

List the characteristics/purposes of money. Use the example of animal pelts being considered money during the US colonial time period to explain the importance of the three characteristics. (T3)

1. Medium of exchange - anything that is used to determine value during the exchange of goods and services 2. Store of value - store of value keeps its value; if you save it 3. Standard of Value - means for comparing the values of goods and services

Low inflation is sought as a policy target, in part, because high inflation can cause redistribution between different people or groups of people. List the three primary redistributive effects or mechanics of inflation and explain how each can cause real distributions. (T2)

1. Price Effects - Ppl who buy products that are increasing in price the fastest end up worse off. 2. Income Effects - People whose nominal incomes rise more slowly than the rate of inflation end up worse off. - People whose nominal incomes increase faster than inflation end up with larger shares of total output. 3. Wealth Effects - People who own assets that are declining in real value end up worse off. Inflation acts just like a tax, taking income or wealth from one group and giving it to another.

The Aggregate Demand (AD) curve is comprised of the individual components of Consumption (C), Investment (I), Government (G) and Net Exports (NX). There is a number of major factors or determinants that can cause Consumption to change. List three of these major determinants and explain what would have to happen to each of them to cause the Consumption component of Aggregate Demand to decrease. (T2)

1. Taste 2. Expectations 3. # of Buyers 4. Income 5. Other goods

Suppose lower expectations lead to a decrease of $240 in desired investment in the economy and the marginal propensity to consume is 0.75. What will be the total decrease in aggregate demand resulting from initial $240 decrease in investment expenditure after an infinite number of cycles? (T2) A. -$960.00 B. -$135.00 C. -$555.00 D. -$240.00

A. -$960.00

Consumption expenditures (T2) A. Account for over two-thirds of total spending B. Include purchases of new and used goods by consumers C. Are equal to disposable personal income plus personal income D. Are equal to the consumer spending plus transfer payments

A. Account for over two-thirds of total spending

Which of the following will cause an increase in US gross exports? (T2) A. An increase in foreign consumer income B. A decrease in foreign business investment C. An increase in US consumer income D. A decrease in foreign business income

A. An increase in foreign consumer income

If the Fed wants to increase AD, it should do which of the following? (T3) A. Conduct open market purchases B. Raise the discount rate C. Raise the required reserve ratio D. Lower capital gains tax rates

A. Conduct open market purchases

Which of the following is included in M1? (T3) A. Currency in circulation B. Currency in a bank's vault C. Credit card balances D. All of the choices are correct

A. Currency in circulation

The basic money supply M1 includes (T3) A. Currency in circulation, transactions accounts and traveler's check. B. Currency in circulation, transactions accounts and savings accounts. C. Currency in circulation, transactions accounts and traveler's check and money market mutual funds. D. Currency in circulation, savings accounts and credit card balances.

A. Currency in circulation, transactions accounts and traveler's check.

If the economy is producing at capacity and consumers are willing and able to buy even more goods, this may cause (T2) A. Demand-pull inflation B. Cost-push inflation C. Supply-side inflation D. The price effect

A. Demand pull inflation

Labor productivity is measured as the (T3) A. Dollar value of output per unit of labor B. Output per labor-hour C. Hourly wage rate divided by output per labor-hour D. Dollar value of inputs per unit of output

A. Dollar value of output per unit of labor

In periods of rising prices, percentage increases in nominal GDP will (T1) A. Exceed percentage increases in real GDP. B. Equal percentage increases in real GDP. C. Be less than percentage increases in real GDP. D. Not change in relationship to real GDP.

A. Exceed percentage increases in real GDP.

Individual consumers supply ___ and purchase ___. (T1) A. Factors of production; final goods and services. B. Intermediate goods; final goods and services. C. Final goods and services; factors of production. D. National goods and services; factors of production.

A. Factors of production; final goods and services.

Internal ownership of the national debt occurs when U.S. Treasury bonds are purchased by all of the following except (T3) A. Foreign countries that we trade with B. State banks C. The Federal Reserve System D. Individual U.S. citizens

A. Foreign countries that we trade with

If the market wage for fast-food restaurants is $4 and the government enforces a minimum wage of $7, the unemployment rate will (T1) A. Increase as quantity of labor supplied Increases and quantity of labor demanded decreases. B. Increase as quantity of labor supplied decreases and quantity of labor demanded increases. C. Increase as quantity of labor supplied Increases and quantity of labor demanded increases. D. Not be affected by the minimum wage.

A. Increase as quantity of labor supplied Increases and quantity of labor demanded decreases.

When the economy is at equilibrium (T2) A. Leakages equal injections B. Inventories must equal zero C. Leakages equal aggregate demand D. There are no leakages

A. Leakages equal injections

To calculate real GDP we (T1) A. Measure in the prices of goods and services of that period. B. Estimate future prices of goods and services. C. Adjust the market value of goods and services for changing prices. D. None of the choices are correct.

A. Measure in prices of goods and services of that period.

Supply-side policies are designed to achieve a (T3) A. Movement up the Phillips curve to a higher inflation rate B. Movement down the aggregate supply curve C. Lower inflation rate but a higher unemployment rate D. Lower inflation rate and a lower unemployment rate

A. Movement up the Phillips curve to a higher inflation rate

Income in constant prices is (T2) A. Nominal income B. Real income C. Bracket creep D. Income effect

A. Nominal income

Someone 18 years old who is not employed and is not actively seeking work is considered (T1) A. Not in the labor force. B. In the labor force. C. Employed. D. Unemployed.

A. Not in the labor force.

External shocks include all of the following except (T2) A. Population growth B. Natural disasters C. Terrorist attacks D. Wars

A. Population growth

In a market economy with no government intervention, the HOW to produce question is based on (T1) A. Production costs alone B. Production costs plus environmental considerations. C. Environmental considerations only. D. Consumer Demanded.

A. Production costs alone.

Local property taxes are a (T1) A. Regressive tax because poorer people spend a large percentage of their income on housing. B. Progressive tax because as income increases people tend to buy more expensive homes. C. Progressive tax because the total tax on housing increases as the price of the house increases. D. Proportional tax because properties are taxed at the same rate regardless of the value.

A. Regressive tax because poorer people spend a large percentage of their income on housing.

If market interest rates fall, the selling price of existing bonds in the market will, ceteris paribus, (T3) A. Rise B. Fall C. Not change D. Rise or fall based on other market conditions

A. Rise

Automobile workers in Detroit who are unemployed because of foreign imports at the same time that job vacancies exist for coal miners in West Virginia would most likely be classified as (T1) A. Structurally unemployed. B. Cyclically unemployed. C. Fictionally unemployed. D. Seasonally unemployed.

A. Structurally Unemployed

Fiscal restraint is defined as (T2) A. Tax hikes or spending cuts intended to reduce aggregate demand. B. Tax hikes or spending cuts intended to increase aggregate demand. C. Tax cuts or spending hikes intended to increase aggregate demand. D. Tax cuts or spending hikes intended to reduce aggregate demand.

A. Tax hikes or spending cuts intended to reduce aggregate demand.

Depreciation represents (T1) A. The consumption of capital in the production process. B. A loss of productive capacity as a result of the inefficient use of resources. C. Wasted capital. D. Gross investment plus net investment.

A. The consumption of capital in the production process.

The market mechanism may best be described as (T1) A. The use of market price and sales to signal desired output. B. The use of market signals and government directives to select economic outcomes. C. The process by which the production possibilities curve shifts inward. D. Price regulation by government.

A. The use of market price and sales to signal desired output.

In the figure above (11.1), assume aggregate demand is represented by AD1 and full employment output is $6.0 trillion. The AD shortfall is equal to (T2) A. $0.2 trillion B. $0.4 trillion C. $0.6 trillion D. None of these choices are correct

B. $0.4 trillion

Money Aggregates of the U.S. Financial System (#2). Assume an original balance sheet: The level of total reserves in the table above is (T3) A. $1,150 billion B. $150 billion C. $250 billion D. $400 billion

B. $150 billion

If the nominal interest rate is a constant 15 percent and anticipated inflation falls from 10 percent to 7 percent, the real interest rate would change from (T3) A. 15 to 10 percent B. 5 to 8 percent C. 7 to 9 percent D. 8 to 5 percent

B. 5 to 8 percent

If an economy experiences constant opportunity costs with respect to two goods, then the production possibilities curve between the two goods will be (T1) A. Bowed outward or concave from below. B. A straight, downward-sloping line. C. Bowed inward or convex from below. D. Bowed outward until the two goods are equal, and then bowed inward.

B. A straight, downward-sloping line.

If consumers attempt to buy more goods than the economy can produce, the result is (T2) A. Unemployment B. Demand-pull inflation C. Cost-push inflation D. The wealth effect

B. Demand-pull inflation

If the government places a price ceiling on cancer-treating drugs, then (T1) A. Fewer people will die from cancer. B. Fewer cancer treating drugs will be available. C. There will be no change in the number of people who die from cancer. D. The supply of cancer-treating drugs will increase.

B. Fewer cancer treating drugs will be available.

According to the law of demand, during a given period of time, the quantity of a good demanded (T1) A. Increases as its price rises, ceteris paribus. B. Increases as its price falls, ceteris paribus. C. Deceases as its price falls, ceteris paribus. D. Does not change when price changes.

B. Increases as its price falls, ceteris paribus

The recessionary GDP gap is (T3) A. Equal to the spending multiplier B. The amount by which equilibrium GDP falls short of full-employment GDP C. Small unless the unemployment rate is very low D. Reduced by shifting aggregate demand to the left

B. The amount by which equilibrium GDP falls short of full-employment GDP

Based on this table (#6), the real GDP for 2002 was (T2) A. $7,749.0 billion B. $4,783.6 billion C. $5,122.0 billion D. $8,297.1 billon

C. $5,122.0 billion

Suppose a bank has $500,000 in deposits and a required reserve ratio of 10 percent. Then required reserves are (T3) A. $5,000,000 B. $500,000 C. $50,000 D. $10,000

C. $50,000

An increase in the misery index would definitely result from (T3) A. A leftward shift of the Phillips curve B. A rightward shift of the Phillips curve C. A movement along the Phillips curve toward greater unemployment D. A movement along the Phillips curve toward greater inflation

C. A movement along the Phillips curve toward greater unemployment

What happens to aggregate demand when government spending and the taxes to pay for it both rise by the same amount? (T2) A. Aggregate demand falls by the amount of the government spending B. There is no effect C. Aggregate demand rises by the amount of the government spending D. Aggregate demand rises by the amount of the government spending times the multiplier

C. Aggregate demand rises by the amount of the government spending

Increased investments in infrastructure will shift (T3) A. The Phillips curve to the right B. Aggregate supply to the right and aggregate demand to the left C. Both aggregate supply and aggregate demand to the right D. Both the Phillips curve and aggregate demand to the left

C. Both aggregate supply and aggregate demand to the right

Which of the following is an automatic stabilizer that reduces tax receipts during a recession? (T3) A. Welfare benefits B. Medicaid C. Corporate and individual income taxes D. Indexed retirement and Social Security benefits

C. Corporate and individual income taxes

By raising and lowering the discount rate, the Fed changes the (T3) A. Level of required reserves held by individuals B. Incentive for banks to buy common stock C. Incentive for banks to borrow reserves D. Money multiplier

C. Incentive for banks to borrow reserves

When the economy is below full employment, it is producing (T1) A. On the production possibilities curve. B. Beyond the production possibilities curve. C. Inside the production possibilities curve. D. None of the choices are correct.

C. Inside the production possibilities curve.

A furniture factory produces dining room sets. The lumber that is purchased from the lumberyard is a/an (T1) A. Intermediate service. B. Final good. C. Intermediate good. D. Final service.

C. Intermediate good.

Which of the following policies will reduce the budget deficit which achieving greater fiscal restraint? (T3) A. More government expenditures and higher taxes. B. More government expenditures and lower taxes. C. Less government expenditures and higher taxes. D. Less government expenditures and lower taxes.

C. Less government expenditures and higher taxes.

An increase in the income-dependent portion of the consumption function would correspond to a (T2) A. Shift of the consumption function upward B. Shift of the consumption function downward C. Movement along the consumption function to the right D. Movement along the consumption function to the left

C. Movement along the consumption function to the right

The term transfer payments refers to (T1) A. Federal income taxes. B. Money that is transferred between savings and checking accounts. C. Payments to individuals that are not in exchange for current goods and services being produced. D. Additional profits transferred to monopolies as a result of their market power.

C. Payments to individuals that are not in exchange for current goods and services being produced.

Which of the following is an indicator of how much output the average person would get if all output were divided up evenly among the population? (T1) A. GDP. B. Economic growth. C. Per capita GDP. D. Real GDP.

C. Per capita GDP

The determinants of macro economic include all of the following except (T2) A. Internal market forces B. External stocks C. Prices D. Policy levers

C. Prices

An increase in unemployment, ceteris paribus, may (T3) A. Lead to decreased government expenditures B. Lead to increased government revenues C. Reduce a budget surplus D. Reduce a budget deficit

C. Reduce a budget surplus

Productivity (T1) A. Rises when the value of output rises relative to the costs of inputs. B. Falls when the value of output rises relative to the costs of inputs. C. Rises when the ratio of output to input increases. D. Falls when factors of production cost more.

C. Rises when the ratio of output to input increase

Which of the following theorists believe a decrease in marginal tax rates will increase the incentives to work and invest? (T3) A. Keynesians B. Monetarists C. Supply-Side Economists D. Phillips Curve advocates

C. Supply-Side Economists

The marginal propensity to consume can be found by dividing (T2) A. Total consumption by total saving B. Total consumption by the number of people consuming C. The change in total consumption by the change in disposable income D. Disposable income by total consumption

C. The change in total consumption by the change in disposable income

Which of the following is the best description of the U.S. tax system? (T1) A. The federal income tax is regressive, but sales, property, and other taxes tend to be progressive. B. The U.S. tax system is consistently progressive. C. The federal income tax is progressive, but sales, property, and other taxes tend to be regressive. D. The U.S. tax system is consistently regressive.

C. The federal income tax is progressive, but sales, property, and other taxes tend to be regressive.

If the real rate of interest is negative, then, ceteris paribus, (T3) A. The nominal interest rate is negative B. Monetary policy is tight C. The nominal interest rate is less than the anticipated rate D. The inflation rate is negative

C. The nominal interest rate is less than the anticipated rate

In real terms, the cost of government spending is measured by (T1) A. Combining the private sector output with the public sector output sacrificed when the government employs scare resources. B. Subtracting private sector output from the public sector output sacrificed when the government employs scarce resources. C. The private sector output sacrificed when the government employs scarce resources. D. The public sector output sacrificed when the government employs scarce resources.

C. The private sector output sacrificed when the government employs scarce resources.

When an economy is operating at "full-employment", as economists usually define the term, (T2) A. Everyone who wants a job has a a job B. Inflation is a significant problem C. The unemployment rate is 4-6% D. The unemployment rate is 0%

C. The unemployment rate is 4-6%

List and describe two major differences between the theories of Classical vs. Keynesian economics. Suppose there is currently a macroeconomic equilibrium that is settled above full-employment GDP. Use your theoretical differences just described to explain what these two types of economists might recommend doing in this case to right the economy. Explain briefly how each would work. (T2)

Classical economy - government usually screw up the market since it is run by politicians and politicians a) usually do not understand economy that much and b) have even other interests than economy itself they smuggle in Keynesian economy - market is flawed and it needs interventions from time to time - but the original extend and kind of interventions which were supported by original Keynesian economists are not all that good.

List and explain three factors that would increase the autonomous Consumption portion of Aggregate Demand. List and explain two factors that would increase the Investment portion of Aggregate Demand. (T2)

Consumption: 1. Price decrease - 2. Taxes decrease - 3. Wealth increase - Investment: 1. Taxes decrease - 2. Changes in Expectations -

If the banking system has a required reserve ratio of 10 percent, the money multiplier is (T3) A. 0.1 B. 0.9 C. 1.11 D. 10.0

D. 10.0

The normal market demand curve for money is (T3) A. A horizontal curve at very high interest rates, where the quantity demanded changes but the interest rate is constant B. An upward sloping demand curve, where more money is held when interest rates are higher C. A vertical demand curve, where more money is held regardless of the interest rate D. A downward sloping demand curve, where more money is held at lower interest rates

D. A downward sloping demand curve, where more money is held at lower interest rates

Economic models are used by economists to (T1) A. Predict economic behavior. B. Develop economic policies. C. Explain economic behavior. D. All of the choices are correct.

D. All of the choices are correct.

Which of the following could cause the money supply to decrease? (T3) A. People and institutions borrow more B. The economy emerges from a recession into rapid growth C. The society moves to a cashless society D. Banks become more conservative in making loans

D. Banks become more conservative in making loans.

Which of the following is not a source of productivity gain? (T3) A. Improved management B. Higher skills C. Technological advances D. Economic growth

D. Economic growth

If the Fed buys $20 billion of US bonds in the open market and the reserve requirement is 5 percent, M1 would eventually (T3) A. Decrease by $100 million B. Decrease by $400 million C. Increase by $100 million D. Increase by $400 million

D. Increase by $400 million

Which of the following is NOT true about your nominal income? (T2) A. It is the amount of money you receive during a given time period. B. It is not an accurate measured in current dollars C. It is not an accurate measurement of purchasing power. D. It is the same as your real income in times of high inflation

D. It is the same as your real income in times of high inflation

Which of the following is NOT a macroeconomic statement? (T1) A. The unemployment rate for the United States rose to 5 percent in the last quarter. B. The federal reserve lowered interest rates at the last meeting. C. Congress increased the minimum wage rate in January. D. Jenny's wage rate rose, and in response, she decides to work more hours.

D. Jenny's wage rate rose, and in response, she decides to work more hours.

According to supply-side theory, which of the following would cause a rightward shift in the aggregate supply curve? (T3) A. Eliminating job search assistance B. Increasing transfer payments to the unemployed C. Eliminating government-funded training programs for the structurally unemployed D. Lifting trade restrictions

D. Lifting trade restrictions

If population growth is less than output growth for a country, (T1) A. Real GDP has decreased. B. Average living standards will decrease. C. GDP must have fallen at a fairly rapid rate. D. The per capita living standard will increase.

D. The per capital living standard will increase.

Which of the following is the best indication that the government is pursuing restrictive fiscal policy? (T3) A. The total deficit increases B. The structural deficit increases C. The cyclical deficit increases D. The structural deficit decreases

D. The structural deficit decreases

Suppose that the Fed raises the required reserve ratio. Show on a Ms/Md graph what will happen to the money supply and to the equilibrium interest rate. Explain why interest rates will change within the banking system even though the Fed did not perform open-market operations. (T3)

Fiscal Restraint: Reserves - Discount - Open market:buy bonds - Fiscal stimulus: Reserves - Discount - Open marker:sell bonds - An increased reserve requirement will cause a leftward shift in money supply because increasing the required reserves is part of a fiscal restraint. Along with a fiscal restraint comes an increased interest rate, which decreases the incentive for banks to borrow reserves. Which also causes the banks to loan less, this may also cause some smaller banks to fail.

Congress wants to change trade barriers and infrastructure development as supply-side policies. Explain how each separate policy should be altered (i.e., increased or decreased) and describe how each would work to increase aggregate supply. (T3)

Infrastructure development should be increased because a better quality and quantity of infrastructure will lead to more efficient economy and labor productivity. An increased efficiency will work to increase aggregate supply because it will make production and transportation mroe efficient and reduce costs. Trade barriers shoud be decreased, meaning trade shoudl be less restrictive and more open. A more open trade barrier could lead to more trade and cheaper trades, this would help with economic growth because businesses would be getting more if not the same materials as a lower price. Which they could use that excess money to incentivize workers to work harder, which could lead to greater labor productivity. All of this would work to increase aggregate supply.

Explain why monetarists believe that expansionary monetary policy (stimulus) will not affect real output (or real GDP) in the long run. Use the monetarist equation of exchange to describe what they feel would occur, instead, in this situation. (T3)

Monetarists believe that a stimulus would not affect GDP, but rather only price level. The only way to increase GDP is to multiply M times V to affect GDP. Monetarists believe that price will go up with a monetary stimulus, causing it with GDP to rise.

Define the calculation of net domestic product (NDP). Explain what benefit economists receive by comparing NDP to gross domestic product (GDP). -What does the investment goods (I) component of GDP entail? How is it related to the concept of net domestic product? (T1)

NDP = GDP - depreciation GDP = C+I+G+NX

Draw and label a graph that shows the macro-economy currently in equilibrium in a recessionary gap. List three separate fiscal policies that Congress could implement to address this issue. Describe briefly how each would work to close the recessionary gap. (T2)

To address this issue you need a fiscal stimulant: 1. Tax-cut - a tax cut would increase consumer spending, which would cause AD to shift right. 2. Government spending - A increase in government spending would also cause AD to shift right. 3. Decrease in Transfers payments - A decrease in transfer payments will put more money in the hand of the consumers in the market. This is because transfer payments cover people on social security and welfare. So by them receiving less, others would receive more. Which would can a rightward shift of AD.