Macroeconomics - Final Exam

A speculative bubble occurs when the: A) price of an asset rises above its fundamental value. B) price of an asset falls below its fundamental value. C) asset experiences liquidity risk. D) asset experiences a sudden fall in price.

A

Below is U.S. economic data for 2018. What was total spending? Consumption - $13.999 trillion Investment - $3.628 trillion Government Spending - $3.591 trillion Exports - $2.510 trillion Imports - $3.148 trillion A) $20.58 trillion B) $21.86 trillion C) $23.73 trillion D) $21.22 trillion

A

Consider the following basket of goods: 50 bottles of milk, 100 avocadoes, 50 apples, and eight pineapples. Suppose that last year, each bottle of milk was $2.50, each avocado was $1.50, each apple was $0.75, and each pineapple was $4. This year, each bottle of milk is $2.50, each avocado is $1.80, each apple is $0.80, and each pineapple is $4.30. What is the inflation rate between last year and this year? A) 10.13% B) 8.99% C) -9.09% D) -10%

A

How is monetary policy different from fiscal policy? A) Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes. B) Monetary policy focuses on correcting inflation, whereas fiscal policy focuses on unemployment. C) Monetary policy is determined by the president, whereas fiscal policy is determined by the chair of the Federal Reserve. D) There is no difference between the two policies.

A

If the interest rate is 10%, what is the approximate present value of $50,000 received in 20 years? A) $7,432 B) $41,322 C) $45,455 D) $336,375

A

If the interest rate is 6% and the average inflation rate is 3.1%, what is the approximate future value of $75,000 in 20 years? A) $132,852 B) $240,535 C) $89,743 D) $42,340

A

If the output gap is negative, then the Federal Reserve will use its floor framework to _____ the interest on excess reserves, borrow _____ money from financial institutions to set the lower bound for the federal funds rate, and _____ the discount rate to set the upper bound for the federal funds rate. A) lower; less; decrease B) lower; less; increase C) raise; more; increase D) raise; more; decrease

A

In 2017, Canada's GDP was approximately $1.57 trillion, and its population was about 36.96 million. What was Canada's approximate GDP per person in 2017? A) $42,590 B) $58,027 C) $5,000 D) $15,700

A

Suppose Julia's consumption function is C=A+b*Income, where A is called autonomous consumption, b is the marginal propensity to consumption. When Julie's income is $10,000, she spends $10,000, and when her disposable income is $15,000, her spending is $12,500. Julie's marginal propensity to consumption is 0.5, then her autonomous consumption should be: A) $5,000 B) $10,000 C) $15,000 D) $0

A

Suppose that a CPI basket includes avocadoes, pineapples and oranges. Avocadoes become very expensive, and consumers substitute away from avocadoes and buy hummus instead. If the CPI basket does not change to reflect the move away from avocados, the result is: A) substitution bias. B) understated inflation. C) the failure to capture real variables versus nominal variables. D) quality bias.

A

Suppose the domestic price of a gallon of milk is $3.75 in the United States, and a similar gallon of milk costs 70 pesos in Mexico. If the nominal exchange rate is 19.06 Mexican pesos per U.S. dollar, then what is the approximate real exchange rate? A) 1.02 B) 3.67 C) 2.05 D) 19.06

A

The aggregate production function Y = f(L, H, K) shows that economic growth can occur if: (i) labor force participation rates fall. (ii) human capital stays constant. (iii) education and worker skills improve. (iv) the depreciation rate increases. A) (iii) only B) (i) only C) (i) and (iv) D) i), (ii), (iii), and (iv)

A

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? A) 0.8 B) 0.5 C) 0.2 D) 1.25

A

Which of the following is an example of a depreciating US dollar? A) You book a holiday in Bali, Indonesia, for $1,700 in U.S. dollars. At checkout, you pay in Indonesian rupiahs at the exchange rate of the day. This works out to be an equivalent of $1,756 in U.S. dollars. B) You purchase British pounds at the bank for your trip to London. Each British pound costs you almost U.S. $1.48. C) You place an order for South African wine at the price of 70 rands per bottle. Prior to shipping, the company informs you that the price of each bottle has decreased to 68 rands per bottle. D) You order an imported vehicle from Sweden. The price of the car at the time of order is U.S. $47,500. You settle your bill once the car has arrived, at the current exchange rate. Your bill works out to be $47,389.

A

Which of the following stages of the business cycle is most preferable when you graduate from college and begin looking for a job? A) Expansion B) Trough C) Contraction D) Recession

A

Which of the following will fall when the economy is expanding? A) Applications for unemployment benefits B) Business confidence C) Consumer confidence D) Nonfarm payrolls

A

You run a factory that makes leather shoes. You opt to pay your workers twice the going wage in order to reduce tardiness and shirking and to increase workers' morale and effort. This scenario is an example of: A) an efficiency wage. B) cyclical unemployment. C) discouraged workers. D) a minimum wage.

A

You take a trip to Dhaka, Bangladesh. Your hotel room costs 12,000 Bangladeshi taka per night, and the nominal exchange rate is 85 taka per U.S. dollar. How much does your hotel room cost in U.S. dollars? A) $141 B) $175 C) $102 D) $120

A

According to the rule of 70, if GDP per person is growing at a rate of roughly 4%, approximately how many years will it take for average income to double? A) 53 years B) 18 years C) 280 years D) 25 years

B

Commercial banks: A) are equivalent to Federal Reserve district banks. B) offer services, such as checking accounts, to the general public. C) are banks that sell stock in the Federal Reserve. D) serve only commercial businesses and not the general public.

B

How can high government debt lead to slow economic growth in the future?(i) Stock markets will weaken.(ii) Governments may find it hard to fund other spending such as infrastructure projects.(iii) Governments may increase future taxes to pay interest payments on rising debt.(iv) Governments borrow funds that might otherwise have been used for investment. A) (i) only B) (ii), (iii), and (iv) C) (iii) and (iv) D) (iv) only

B

If the financial account balance is $2 trillion, then the current account balance is: A) $2 trillion. B)-$2 trillion. C) zero. D) $4 trillion.

B

If there is a permanent rise in income, a consumption smoother will exhibit _____ in consumption, and a hand-to-mouth consumer will exhibit _____ in consumption. A) a small increase; a large increase B) a large increase; a large increase C) no change; a large increase D) a large increase; no change

B

If there is deflation of 1% and a firm wants to lower real wages by 1%, it will need to: A) raise nominal wages by 1%. B) lower nominal wages by 2%. C) lower real wages by 2%. D) leave nominal wages unchanged.

B

In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes. A) expansionary; lowers; raises B) expansionary; raises; lowers C) contractionary; lowers; raises D) contractionary; raises; lowers

B

In the AD-AS framework, macroeconomic equilibrium occurs when: A) AS meets potential GDP. B) AD and AS intersect. C) AD meets potential GDP. D) the GDP deflator is equal to 100.

B

Self-fulfilling panics that cause bank runs can be mitigated by: A) zero-interest deposits. B) deposit insurance. C) government takeovers of banks. D) fundamental analysis.

B

Suppose that an economy is overheating. You would expect to see the unemployment rate: A) rise above the equilibrium unemployment rate. B) fall below the equilibrium unemployment rate. C) be equal to the equilibrium unemployment rate. D) be zero.

B

Suppose that the consumption function is C=$100+0.8*YD, where YD is disposable income. If disposable income is $1,000, savings is: A) $1000 B) $100 C) $200 D) -$200

B

The catch-up effect would be largest in an economy where: A) foreign direct investment is not allowed. B) the initial level of capital is low. C) capital accumulation is significant. D) the initial level of capital is high.

B

The four stages of the business cycle are: A) expansion, growth, contraction, and depression. B) peak, recession, trough, and expansion. C) consumption, investment, government expenditure, and net exports. D) full employment, potential GDP, recessionary gap, and inflationary gap

B

The steady state in the Solow growth model occurs when: A) investment equals depreciation. B) capital accumulation begins. C) depreciation reaches zero. D) savings increases in the economy.

B

Which of the following services are provided by the federal government? A) sewer services B) military defense C) bus services D) trash and recycling

B

You are given the choice of receiving $100 today or $146.41 four years from today. What annual interest rate will make you indifferent between these two choices? A) 15% B) 10% C) 5% D) 17%

B

Along the same aggregate production function, the level of _____ is the same. A) capital B) economic growth C) technology D) labor

C

Appreciation of the Gambian dalasi occurs when the exchange rate changes from:(i) 51 Gambian dalasi per U.S. dollar to 49.57 Gambian dalasi per U.S. dollar.(ii) 51 Gambian dalasi per U.S. dollar to 52.18 Gambian dalasi per U.S. dollar.(iii) 0.02 U.S. dollar per Gambian dalasi to 0.04 U.S. dollar per Gambian dalasi.(iv) 0.02 U.S. dollar per Gambian dalasi to 0.015 U.S. dollar per Gambian dalasi. A) (i) and (iv) B) (ii) and (iv) C) (i) and (iii) D) (ii) and (iii)

C

Consider the following data. What is the marginal propensity to consume? Consumption (trillion) and Income (Trillion) 1 - 1 1.7 - 2 2.4 - 3 A) 0.3 B) 1 C) 0.7 D) 1.42

C

Crowding out is the: A) increase in business investment as opposed to household investment. B) reduction in the budget deficit. C) reduction in private investment due to a rise in government spending. D) increase in inventories due to a recession.

C

Food stamps are an example of: A) health care spending. B) military defense spending. C) mandatory spending. D) discretionary spending.

C

If the interest rate is 4% and the average inflation rate is 2%, what is the approximate future value of $15,000 in 10 years? A) $15,900 B) $17,949 C) $18,285 D) $22,204

C

In an inflationary situation, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today. A) lower; reduce B) lower; induce C) raise; reduce D) raise; induce

C

Suppose the required reserve ratio is 10% and a depositor withdraws $500 from her bank deposit. If the bank does not hold any excess reserves, the money supply will: A) be unchanged B) increase by $500 C) decrease by $4,500 D) decrease by $5,000

C

The Board of Governors of the Federal Reserve: (i) guides the operations of the Federal Reserve. (ii) ensures that interest rate ceilings are maintained. (iii) ensures that monetary policy follows the guidelines from Congress. (iv) oversees all the Federal Reserve district banks. A) (iv) only B) (i) and (iv) C) (i), (ii), and (iv) D) (i), (ii), (iii), and (iv)

C

The CPI changes from 100 to 200. This means that: A) the inflation rate has doubled. B) there is deflation. C) overall prices have doubled. D) the base year has changed.

C

The efficient market hypothesis states that: A) at any point in time, a firm selling a stock has engaged in efficient production methods. B) the market price for a stock will always exceed the book value of the stock. C) at any point in time, stock prices reflect all publicly available information. D) market supply and market demand interact to reach equilibrium for the stock price.

C

The exchange rate effect is the: A) inverse relationship between prices and quantity of output demanded. B) positive relationship between prices and quantity of output demanded. C) inverse relationship between real interest rates and net exports. D) positive relationship between real interest rates and net exports.

C

The table shows consumer price index data for the United States. In which year was the inflation rate the highest? Year - Consumer Price Index 1990 - 130.66 1991 - 136.17 1992 - 140.31 1993 - 144.38 1994 - 148.23 1995 - 152.38 A) 1992 B) 1993 C) 1991 D) 1994

C

Three years ago, Mariam purchased a 30-year bond paying 4.75% annual interest. She now sees comparable 30-year bonds offering 6.25% annual interest rate. This scenario describes _____ risk. A) liquidity B) default C) term D) market

C

Suppose you want a future value of $5,000 on your investment in 10 years. The average annual rate of return is 3%. What should be the present value of your investment? A) $5,000 B) $5,150 C) $6,720 D) $3,720

D

Which of the following changes will lead to a decrease in both the price level and the quantity of output in an economy? A) a rise in aggregate demand B) a rise in aggregate supply C) a fall in aggregate demand D) a fall in aggregate supply

C

Which of the following is (are) included in investment?(i) military spending(ii) the purchase of an aircraft by a domestic airline(iii) the purchase of $45,000 worth of bonds(iv) the purchase of $32,000 worth of stock(v) social security payments(vi) the construction of a highway by the federal government A) (i) and (vi) B) (i), (ii), (v), and (vi) C) (ii) only D) (ii), (iii), and (iv)

C

Which of the following is a broad indicator? A) The price of imported avocados B) Enrollment at your university C) The unemployment rate D) An index of technology use in farming

C

Which of the following people can be classified as "unemployed"? A) Fred, who is on medical leave from his job B) Jose, who is in the military C) Laura, who has been seeking employment for two months D) Damien, who does not have a job but has not looked for work

C

Which of the following services are provided by local government? A) Medicare B) military defense C) bus services D) Pell grants

C

You just bought two used textbooks for $25 each. How much does GDP change because of your purchase? A) GDP rises by $25. B) GDP rises by $50. C) GDP does not change. D) GDP falls by $50.

C

Your textbook costs $90, and you can resell it in one year for $45. If the annual interest rate is 10%, then the present value of the textbook's resale value (to the nearest dollar) is: A) 90 B) 45 C) 41 D) 37

C

Consider the data shown in the table. Assume that the economy produces only textbooks. What is the nominal GDP for this year? (Actual price means nominal price) Textbooks sold and Actual Price Last year: 5,000 and $50 This year: 5,250 and $55 A) $276,750 B) $262,500 C) $250,000 D) $288,750

D

If an economy has a negative output gap of 2%, this means: A) unemployment is 2% above the natural rate of unemployment. B) GDP is 2% above potential GDP. C) Inflation is 2% above the long-run rate of inflation. D) GDP is 2% below potential GDP.

D

In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars? A) $1,410 B) $227 C) $9,422 D) $8,746

D

In a closed economy, government spending is $30 billion, consumption is $70 billion, taxes are $20 billion, and GDP is $110 billion, investment spending is $10 billion. As a result: A) private savings are $10 billion B) the government's budget balance is a surplus of $10 billion C) there is no net savings D) private savings are $20 billion

D

In order to be considered unemployed, the person must be: (i) over the age of 16. (ii) actively searching for work. (iii) available to work. (iv) skilled. A) (i), (ii), (iii), and (iv) B) (ii) and (iv) C) iii) and (iv) D) (i), (ii), and (iii)

D

Nominal GDP grew by 4%, and the growth rate of real GDP was 2.5%. What was the rate of inflation? A) 4% B) 6.5% C) 2.5% D) 1.5%

D

Real GDP is calculated by: A) adding total income to total expenditure. B) counting the number of items produced in an economy. C) subtracting national spending from national income. D) adding all the spending in the economy.

D

Suppose the domestic price of a gallon of milk is $3.75 in the United States, and a similar gallon of milk costs 45 yuan in China. If the nominal exchange rate is 7.08 yuan per U.S. dollar, then what is the real exchange rate? A) 1.0 B) 6.36 C) 7.08 D) 0.59

D

Suppose you find a $50 bill that you put in a coat pocket last winter. If you deposit it in your checking account: A) M1 increases by $50 B) M2 increases by $50 C) M1 and M2 both increase by $50 D) there is no change in M1 or M2

D

The government raises the minimum wage. If there are already unemployed people in the economy, we would expect the unemployment rate to: A) stay constant. B) become zero. C) fall. D) rise.

D

The neutral interest rate is the rate at which: A) macroeconomic equilibrium has been reached. B) the zero bound has been reached. C) real interest rates equal nominal interest rates. D) the output gap is equal to zero.

D

What is Botswana's real GDP if its nominal GDP is $18.6 billion (in current US$) and the GDP deflator is 196.7? A) $18.6 billion B) $36.6 billion C) $15.8 billion D) $9.5 billion

D

When inflation falls below its target rate, the Federal Reserve will: A) increase taxes. B) place a ceiling on interest rates. C) raise interest rates. D) lower interest rates.

D

When interest rates rise in the United States, what is the effect on net exports and aggregate expenditure? A) Inflows of foreign savings cause the dollar to depreciate, and this increases exports and reduces imports, leading to a rise in net exports and a rise in aggregate expenditure. B) Government expenditure rises, and this increases imports, net exports, and aggregate expenditure. C) The real value of savings increases, leading to increased imports and decreased exports, and this causes net exports and aggregate expenditure to fall. D) Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure.

D

Which of the following does the Federal Reserve control directly? (i) inflation (ii) unemployment (iii) output (iv) real GDP A) (i) and (ii) B) (ii) and (iii) C) (i), (ii), (iii), and (iv) D) None of the above.

D

Which of the following scenarios shows a production function at work? A) You write a personal letter to your family. B) You go to the library and read a book. C) You go to Home Depot and buy some paint. D) You buy flour and eggs and bake a cake to sell in your bakery.

D

You open an investment account that earns a nominal interest rate of 3.1% in every year. The current consumer price index is 205. In one year, the consumer price index is expected to go to 203. What is your expected real rate of return? A) 7.12% B) 3.1% C) -0.98% D) 4.08%

D

You own and run a bakery. Last month, you purchased $760 worth of flour, eggs, butter, chocolate, and frosting. Using these inputs, you made and sold 12 large wedding cakes for an average price of $525. How much did GDP change? A) GDP rises by $760. B) GDP rises by $5,540. C) GDP rises by $7,060. D) GDP rises by $6,300.

D