macroeconomics final (ch 25, 30, 31, 34, 35)

The standard deduction for a single person is $12,200. Based on this table, if your total income is $84,200, what is the amount of tax you will pay on your taxable income?

$11,699 $84200 - $12200 = $72000 Taxable income = $72000 $9700*0.10 = $970 ($39475 - $9700) = $29775*0.12 = $3573 ($72000 - $39475) = $32525*0.22 = $7155.5 $970 + $3573 + $7155.5 = $11699

Payroll taxes are 6.2%, and Medicare taxes are 2.9% If your employer owes you $665, approximately how much will you get after these deductions?

$604.49 $665 - ((0.062+0.029)*$665) $665 - (0.091*$665) $665 - $60.5515 $604.49

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $665. How much will your work cost your employer?

$725.52 $665 + ((0.062+0.029)*$665) $665 + (0.091*$665) $665 + $60.52 $725.52

In your current job, you earn $41,000. You take the standard deduction of $12,200. You have an offer of a new job working for a different employer. Your salary would go up by $6500. How much extra will you owe in federal income taxes if you take the new job?

$780 $6500*0.12 = $780

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer?

$927.35 $850 + (0.091*$850) $850 + $77.35 = $927.35

The figure shows inflation from 2009 to 2018 for countries in the Organization for Economic Cooperation and Development (OECD). The country with the second-highest inflation rate was:

Russia

With a progressive tax, those with ________ income tend to pay a __________.

more; higher share of their income in taxes.

In the IS-MP analysis in the Fed model, a fall in the interest rate causes a:

movement to the right along the IS curve

An increase in the price of ____ is most likely to create supply-push inflation throughout the economy.

oil

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the:

output gap

The debt-to-GDP ratio in 2021 was about 100%. This means

the total government debt owed was equal to it's total income in 2021

Business owners determine how much to raise their prices based largely on:

their inflation expectations

Consider the Phillips curve shown here. In region B:

there is excess demand

Consider the Phillips curve shown here. In region A:

there is insufficient demand (output is below potential output; inflation falls below expected inflation)

Fiscal policy works best when it is:

timely, targeted, and temporary.

What is excess demand?

too many buyers for too few goods

Which of the following did the New Deal create? -quotas -tariffs - the stock exchange - unemployment benefits

unemployment benefits

Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the

unexpected inflation from the Phillips curve.

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

unexpected inflation of 1%

which of the following is consumption spending

you eat at a fancy restaurant for valentine's day

Inflation occurs when actual output is ____ potential output.

more than

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Next year, you expect GDP to be equal to potential GDP. What is your forecast for unexpected inflation?

0% actual output = potential, so inflation is 0%

Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate inflation is ____ less than expected.

0.25% (subtract) Inflation = expected inflation + unexpected inflation 1.75% = 2% + ? = -0.25% 0.25% LESS than expected

The table shows the salary of a worker in India. The marginal propensity to consume (MPC) is

0.53 MPC = change in consumption divided by change in income MPC = (55650 - 53000) / (105000 - 100000) = 0.53

if a $100 million increase in total income leads to a $62 million increase in consumption, the slope of the consumption function is

0.62 (62/100)

Total consumption is $1,800 when income is $2,000, and total consumption increases to $2,600 when income is $3,000. What is the marginal propensity to consume?

0.8 MPC = change in consumption divided by change in income MPC = $2600 - $1800 = $800 $3000 - $2000 = $1000 $800 / $1000 = 0.8

If expected inflation is 2%, and actual inflation is 2.8%, then unexpected inflation is:

0.8% (subtract) Inflation = expected inflation + unexpected inflation 2.8% = 2% + ? = 0.8%

Consider the following data. What is the marginal propensity to consume?

0.9 MPC = change in consumption divided by change in income Look at changes in ADJACENT ROWS MPC = ($274000 - $184000) / ($300000 - $200000) = 0.9

the table shows the salary of a construction worker in Japan. the level of saving in 2017 is

18,000 euros Savings = real income - real consumption Savings = 40000 - 22000 = 18000

What was the Fed's inflation target in 2019?

2%

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Suppose for next year, you expect GDP to be equal to potential GDP. Current inflation expectations are at 2%. How much does your salary have to change, in nominal terms, in order to maintain your purchasing power at the current level?

2% When inflation goes up 2%, your salary must go up 2% to keep your same purchasing power

the table shows the salary of a worker in Japan. the level of saving in 2015 is

2.2 million Savings = real income - real consumption Savings = 5.5 million - 3.3 million = 2.2 million

Take a look at the IS-MP-PC model shown here. The equilibrium real interest rate is:

3%

The table shows the salary of a worker in India. The level of saving in 2017 is

50,290 rupees Savings = real income - real consumption Savings = 107000 - 56710 = 50290

If Mario is a consumption smoother and has just won a prize of $12,000, we can expect Mario to exhibit

A small change in consumption

If there is a temporary rise in income, a consumption smoother will exhibit _____ in consumption, and a hand to mouth consumer will exhibit ______ in consumption

A small increase; a large increase

Credit constraints limit the

Amount of money that people can borrow

Why does an anticipated change in income lead to no change in consumption for a consumption smoother

Consumption is based on permanent income, which is already factored into anticipated future changes in income

The use of automated harvesting machines greatly increased productivity in farming. How does this affect the Phillips curve for an economy where agriculture is a significant part of GDP?

Down SHIFT of Phillips curve Old (blue) arrow points down to new (purple)

Which figure shows the correct effect on the Phillips curve when there are falling production costs?

Down SHIFT of Phillips curve old (blue) shifts down to new (purple); arrow pointing down

Which is a legitimate concern about having too much government debt?

Excess government borrowing may crowd out spending on more productive projects or investments.

The news of an impending recession in the economy will lead to a

Fall in consumption Rise in precautionary saving Rise in national saving

What effect does a booming real estate market in China have on the consumption function in China

Figure A - Consumption increases; SHIFTS UP

Suppose falling interest rates in Australia discourage saving. What effect does this have on the consumption function in Australia

Figure A - consumption SHIFTS UP Lower interest rates = boost consumption

Which of the following graphs shows the correct effect on the function when consumer wealth increases

Figure B - Consumption SHIFTS UP greater wealth = higher consumption

Which of the following graphs shows the correct effect on consumption function when consumer wealth decreases

Figure C - Consumption SHIFTS DOWN Lower wealth = lower consumption

Which of the following is a reason to worry about government debt? -Future generations can help repay the debt. - The government never really needs to repay the debt. - High and rising debt slows economic growth. - Most of the debt is domestic debt.

High and rising debt slows economic growth.

Why does inflation tend to occur when the economy is growing rapidly?

High levels of demand lead to higher prices

In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the:

IS curve to the left

The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the:

IS curve to the right.

The Fed model combines the ______ curve, the __________ curve, and the _________ curve to link interest rates, the output gap, and inflation.

IS;MP;Phillips

In the IS-MP analysis curve in the Fed model, a decrease in the risk-free rate shifts the :

MP curve down

The rational rule of consumption is to consume more today if the

Marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future

The benefit of an extra dollar of consumption

Marginal benefit of consumption

Why don't most tax expenditures help much if your federal tax bill is zero?

Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill.

Which of the following graphs correctly represents the effect of increased consumer spending on the IS curve?

Real interest rate vertical axis /output gap horizontal axis INCREASED SPENDING

Government spending should be counter cyclical because the spending can boost GDP, but also because

The opportunity cost of resources is lower

Which of the following graphs correctly represents the effect on the Phillips curve in Ethiopia if the Ethiopian birr appreciates?

Unexpected inflation vertical/output gap horizontal FALLING COSTS - line shifts downward

Which figure shows the correct effect on the Phillips curve when the domestic currency depreciates?

Up SHIFT of Phillips curve Old (blue) arrow points up to new (green)

A debt crisis occurs when:

a government cannot repay its loans.

If there is ______ rise in income, there will be an intermediate increase in total consumption in the economy

a temporary

The figure shows inflation expectations and actual inflation for U.S. consumers over time. Which of the following statements correctly describes the relationship between these rates?

actual inflation tends to follow inflation expectations

When there are few jobs available and unemployment is high in an economy, the amount of funding spent on employment claims rises. This is an example of:

an automatic stabilizer

A rise in nominal wages represents:

an increase in production costs (costs more to pay employees more wages)

You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy?

an unchanged real interest rate, an unchanged output gap, and unexpected inflation.

A financial shock is any change in

borrowing conditions that changes the real interest rate at which people can borrow.

The ___ refers to times when the federal government spends more than it's revenue in a given year, whereas the ___ is the accumulation of everything owed by the government plus interest.

budget deficit; national debt

Which of the following services are provided by local government? - military defense - bus services - medicare - pell grants

bus services

When a spending shock occurs, the IS curve shifts by the

change in spending times the multiplier

Suppose rubber prices rise in international markets. For countries that import rubber, this scenario would lead to:

cost-push inflation

In the IS-MP analysis in the Fed Model, the MP curve shows you the

current real interest rate

The Affordable Care Act is an example of:

discretionary spending.

When unexpected inflation is zero, the corresponding unemployment rate is the _____ unemployment rate.

equilibrium

Demand-pull inflation is inflation resulting from:

excess demand

In order to boost output, the federal government engages in _____ fiscal policy, which _______ government spending and _______ taxes.

expansionary; raises; lowers

When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by a ___________ shock.

financial

A budget deficit occurs when:

government spending exceeds government revenue

If the growth rate of GDP is ___ than the real interest rate than our ability to pay back debts would ____.

higher; rise

On which of the following is there a tax incentive in the United States? i) health insurance purchased through employers ii) employer contributions for life insurance iii) rental value on owner-occupied housing iv) your mortgage

i, iii, iv

When using the Fed model, the first step is to

identify the shock and shift the curve.

In the long run, inflation is determined by:

inflation expectations

Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate there is:

insufficient demand -0.25% negative output gap; inflation falls below expected inflation

If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to:

lower nominal wages by 1% No inflation, so must LOWER nominal wages

If managers have an expectation of ongoing inflation, then it is likely that:

prices will rise

a supply shock is any change in

production costs that leads suppliers to change the prices they charge at any given level of output.

If the US Dollar appreciates, which of the following graphs correctly represents the effect on the IS curve?

real interest rate vertical/output gap horizontal decreased spending - line shifts to left

If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then:

real wages have fallen by 2.5% Inflation = 4% Raise = 1.5% Real wages = 4% - 1.5% = 2.5%

If a spending shock increase aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift:

right by $87.5 billion.

The Philippines government provides retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits. These are examples of:

social insurance

If you see a newspaper headline that says "Steel prices rise sharply," this is an example of __________ shock.

supply

Tariffs on inputs lead to a _______ shock.

supply

Insufficient demand leads to a:

surplus and falling prices

Fiscal policy is best implemented when it is

targeted, timely, temporary

Consider the following graph. One of the reasons that government spending rose during the 2007 to 2009 period was the introduction of:

the Affordable Care Act

The government's debt is

the accumulation of all the deficits

The U.S national debt is projected to rise in the coming years because

the government has obligations to the aging portion of the population for retirement and healthcare

Suppose a high-income person, a middle-income person, and a low-income person all purchase identical houses that are financed by similar mortgages. Who spends the most on tax-preferred goods?

the high-income person

Suppose a high-income person, a middle-income person, and a low-income person purchase identical houses that are financed by similar mortgages. Who gets the largest tax benefit?

the high-income person

Fiscal policy is increased in its effectiveness through:

the multiplier effect.

Consider the Phillips curve shown here. In region B:

the output gap is positive