Macroeconomics Final Exam

If real GDP is approximately $11.261 trillion for a given year and the GDP deflator for that year is 111, then nominal GDP is ______ trillion

$12.5 trillion Nominal GDP = Real GDP x GDP Deflator/100 11.261 x 111/100 = 12.49 = 12.5 trillion

Sam deposits $1,500 cash into his checking account, which the bank holds in its value. The reserve requirement is 25%. What is the change in his bank's required reserves?

$375

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $68, how much is the producer surplus?

$4

In the graph, how much is the deadweight loss at $12

$70 Deadweight loss = 12 - 5 = 7 7*(40-20) = 140 140/2 = $70

If a bond has a face value of $1,000 and has a 10% coupon rate, how much is the bond worth after interest rates increase to 12%?

$833.33

In the graph, the producer surplus is $280

False Producer surplus is $140. Producer surplus = 16-2 = 14 14 x 20 (the units for the area) = 280 280/2 = $140

The main policymaking arm of the Fed is the

Federal Open Market Committee

Suppose firms are becoming less optimistic about the economic outlook. What happens to the loanable funds market?

Loanable funds fall and interest rates fall

Suppose the government runs a larger budget surplus. What happens to loanable funds and interest rates?

Loanable funds rise and interest rates fall

The ____ curve is vertical at full employment

Long-run aggregate supply

M2 is ________ in dollar value than M1 because it also contains ________liquid assets.

larger; less

Bonds are considered to be ___________ than stocks because________.

less risky; bondholders are less affected by a firm's bankruptcy

Opportunity cost is

the value of the next-best alternative which was given up

Which of the following is the MOST liquid?

$100 in cash

Suppose economists observe that an increase in government spending of $1 billion raises aggregate expenditure by $3 billion, The economist would estimate that the marginal propensity to save (MPS) is

0.33 MPS = Change in savings/change in income MPS = 1/3 = 0.33

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is ________ lawn(s) mowed.

0.5

If a country grows at 7% per year, approximately how many years will it take for its GDP to double by the rule of 70?

10 years

If nominal GDP in 2014 is $20 billion while real GDP is $16 billion, then the GDP deflator in 2014 is

125 GDP Deflator = Nominal GDP/ Real GDP x 100 GDP Deflator = $20 billion/$16 billion x 100 = 125

If the current year's consumer price index is 214 and last year's consumer price index was 209, then the rate of inflation is

2.4%

A small country has 120 citizens: 80 are employed, 20 are unemployed, 10 are retired, and 10 are kids in school. The unemployment rate is:

20% Unemployment rate = unemployed/labor force x 100 Unemployment rate = 20/100 x 100 = 20%

If inflation is 3%, the target inflation rate is 2%, and the economy is 3% above its long-run output, what the Fed funds target is using the Taylor rule?

7%

Which of the following is NOT a function of money?

A claim to government assets such as gold

Which of the following would NOT shift the short-run aggregate supply curve to the left?

A rise in productivity

A valid price floor can cause

A surplus

Suppose the gasoline demand is rising. Which statement describes a possible cause?

Consumers expect prices to rise soon

Expansionary monetary policy shifts the ________ curve to the ________.

AD; right

Because people make decisions at the margin, when deciding whether to purchase a second car, they would therefore compare the

Additional benefit expected from a second car with the additional costs of the second car

Monetary policy is LEAST effective in reversing

An adverse supply shock

In the graph, if the government sets a minimum price of $75, this is an example of an

Binding price floor

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the

Circular flow diagram

Which economists believe that because the economy will always self-adjust, intervention is unnecessary?

Classical economists

Which of these is NOT a primary role of financial intermediaries?

Collecting taxes on financial transactions

A production possibilities frontier that is a straight line is the result of

Constant opportunity costs

Suppose that anticipated inflation is 4% for the coming years, with loan contacts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 5%

Debtors gain at the expense of creditors

A(n)___in government spending, a ____ domestic currency, and ____ interest rates will shift the aggregate demand curve to the left

Decrease; stronger; higher

Suppose the price level is 100 in the year 2018, 130 in the year 2019, and 150 in the year 2020. In 2020, this economy is undergoing

Disinflation

After graduating from college, Jacky works 25 hours per week at a local supermarket while actively looking for a permanent job. Jacky is classified as:

Employed

During cost-push inflation, aggregate output ______ and the aggregate price level_______

Falls; rises

In the graph, if the government sets a minimum price of $12, there is a shortage of 40 units

False

The choice to attend a free lecture involves no opportunity cost

False

The U.S. gross domestic product (GDP) is equal to the total market value of all

Final goods and services produced in the U.S

Open market operations involve the purchase and sale of

Government securities

If the reserve requirement is 20%, then a $1 increase in deposits means the money supply

Has the potential to increase by $5

Which is NOT considered a basic economic question?

How will the system accommodate change?

Which category is an example of discretionary spending?

Hurricane relief funds

Under Armour is a popular U.S. brand. However, most of its apparel is made in India. In which category would the value of Under Armour apparel sales appear?

In India's GDP

In the figure below, the economy is currently at point E2. Which fiscal policy recommendation will help return the economy to the long-run equilibrium?

Increase personal income taxes

When current real output exceeds potential real output, the Federal Reserve will _____ interest rates to fight _____.

Increase; inflation

What is the single most important factor influencing economic growth for an economy?

Increased productivity

______government spending, _______transfer payments, and _______taxes are all examples of expansionary fiscal policy

Increasing; increasing; lowering

If an economy is operating below full employment, what is likely to happen in the long run?

Input prices and wages fall; SRAS shifts to the right

Barter

Involves a double coincidence of wants if an exchange takes place

Why is increased technological knowledge for a nation important for growth?

It allows the nation to be more productive in goods and services that it produces

In economics, capital refers to

Manufactured buildings and equipment used in the production process

According to the catch-up effect, developing countries

May grow faster than developed countries because they lack the most tools and capital investment lead to higher productivity growth

Which of the following is NOT a factor of production?

Money

An increase in the price of apples would lead to a(n)

Movement up the supply curve for apples

The total accumulation of past deficits subtract surpluses is called the

National debt

The most commonly used monetary policy is

Open market operations

When the government chooses to use resources to build schools, the selected resources are no longer available to build hospitals. This BEST illustrates the concept of

Opportunity cost

When goods are produced at the lowest possible cost, an economy is said to have achieved

Production efficiency

A good example of a government imposed-price ceiling is

Rent controls

Automatic stabilizers include all of these EXCEPT

Research and development funding

What would be a way for the Federal Reserve to slow down the economy when it is growing too quickly or it is inflationary?

Sell more government bonds

To gain from trade, a country should

Specialize in the commodity for which it has a comparative advantage

GDP can be found by adding up either all of the _____ or all of the _____ in the economy

Spending; income

Which set of statements is correct?

The Federal Reserve has 12 regional banks. The Board of Governors has 7 members, each serving a 14-year term

Which of the following is LEAST likely to lead to lower interest rates?

The end of a government program that provides taxpayers with additional incentives to invest in their retirement plans

Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones increases, and (2) the price of smartphone data plans falls. What happens to the equilibrium price and equilibrium quantity?

The equilibrium price rises, but the equilibrium quantity is indeterminate

Which statement correctly describes the sequence that explains how an expansionary monetary policy simulates an economy

The policy lowers interest rates; lower interest rates increase investment; and higher investment increases aggregate demand, which impacts output and the price level

In the short run, how will an increase in aggregate demand most likely affect the overall price level and real GDP?

The price level would increase and the real GDP would increase

If a market is NOT at equilibrium

The price will change, and, in response, market participants will move along the existing supply and demand curves until and market equilibrium

At any price below the equilibrium price

The quantity demanded exceeds the quantity supplied in the market (Shortage)

Suppose policymakers wish to use fiscal policy to fight inflation. Which statement is MOST accurate?

The way to lower the inflation rate is to decrease aggregate demand, which causes a rise in unemployment

Which of the following is NOT an effective tool used by the government to promote economic growth?

Trade barriers to protect domestic industries

The low point of a business cycle is called

Trough

A recession begins after two consecutive quarters of negative growth.

True

As the price of a good increases, quantity supplied increases, and quantity demanded decreases, ceteris paribus

True

If a business increases its inventories, the change is traded as an investment

True

Macroeconomics is concerned with issues such a

Unemployment

Which of the following does occur when the aggregate price rises?

Value of money asset falls

Actual GDP in a country is estimated to be 10 percent below potential GDP. Prices are virtually unchanged from one year ago. Unemployment is 12 percent of the civilian workforce, much higher than it has been in many years. Which of the following policies would be the most appropriate for improving these economic conditions?

decreases in interest rates by the central bank

The U.S. dollars in your wallet are

fiat money

Economics is BEST defined as the study of how

people make rational decisions

If an economy is operating at a point that is inside of its production possibilities frontier, then it can be assumed that its resources are

underutilized