Macroeconomics Final Exam

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $20 billion increase in government expenditures would shift the aggregate demand curve right by

$80 billion, but the effect would be larger if there were an investment accelerator.

Scenario 26-1. Take the following information as given for a small, imaginary economy:• When income is $10,000, consumption spending is $6,500.• When income is $11,000, consumption spending is $7,250.Refer to Scenario 26-1. For this economy, an initial increase of $200 in net exports translates into a(n)

$800 increase in aggregate demand in the absence of the crowding-out effect.

A binding price ceiling(i) causes a surplus.(ii) causes a shortage.(iii) is set at a price above the equilibrium price.(iv) is set at a price below the equilibrium price.

(ii) and (iv) only

If the multiplier is 5.25, then the marginal propensity to consume is

0.81.

A candidate for political office announces the following policies which, she says, economics clearly demonstrates will lead to higher output in the long run: 1. increase immigration from abroad 2. make trade more open between the US and other countries.

1 and 2 both shift long-run aggregate supply right.

Suppose a gardener produces both tomatoes and squash in his garden. If he must give up 8 bushels of squash to get 5 bushels of tomatoes, then his opportunity cost of 1 bushel of tomatoes is

1.6 bushels of squash.

Refer to Scenario 28-1. What is the unemployment rate?

12%

Use data from the table below and calculate GDP using income Approach (HINT: numbers only, no commas and decimal points).

12300

If the multiplier is 3, then the marginal propensity to consume is

2/3.

Refer to Table 3.1. Year 3 is selected as the base year. What is the rate of inflation in year 4?

20%

Refer to Scenario 28-1. What is the total labor force?

28 million

What is the nominal GDP in year 4? (HINT: (numbers only; no dollar sign, no decimal).

280

Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could

benefit both Steve and Tom.

From the attached table, the equilibrium price equals <blank> (HINT: 2 decimal places), and the equilibrium quantity is <blank1>

blank: 1.50 blank1: 70

Olga owns her own business. Sven is an unpaid worker in his family's business. Who is included in the Bureau of Labor Statistics' "employed" category?

both Olga and Sven

Which of the following is not included in GDP?

carrots grown in your garden and eaten by your family

To isolate the impact of one single factor, economists invoke the assumption of

ceteris paribus

Specialization and trade are closely linked to

comparative advantage

During recessions which type of spending falls?

consumption and investment

The deviation of unemployment from its natural rate is called

cyclical unemployment

A movement upward and to the left along a demand curve is called a(n)

decrease in quantity demanded.

hich of the following events must cause equilibrium quantity to rise?

demand and supply both increase

Which of the following events must cause equilibrium price to fall?

demand decreases and supply increases

The nation's antitrust laws are enforced by economists at the Department of

justice

.Which of the following, other things the same, would make the price level decrease and real GDP increase?

long-run aggregate supply shifts right

A group of buyers and sellers of a particular good or service is called a(n)

market

Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as

neither in the labor force nor unemployed.

Which of the following can explain the upward slope of the short-run aggregate supply curve?

nominal wages are slow to adjust to changing economic conditions

Most economists use the aggregate demand and aggregate supply model primarily to analyze

short-run fluctuations in the economy.

Opportunity cost is

that which we forgo, or give up, when we make a choice or a decision

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

the CPI better reflects the goods and services bought by consumers.

Economists who are primarily responsible for advising Congress on economic matters work in which agency?

the Congressional Budget Office

If a price ceiling is not binding, then

the equilibrium price is below the price ceiling.

For an economy as a whole,

income must equal expenditure.

Refer to Table 3.1. The Price Index for year 4 equals

$120

Refer to Table 3.1. The value of year 3's output in real dollars equals

$20

In the economy of Talikastan in 2015, consumption was $800, GDP was $2000, government purchases were $400, and investment was $600. What were Talikastan's net exports in 2015?

$200

Refer to Table 3.1. The value of year 4's output in real dollars is

$30

Refer to Table 3.1, The value of year 4's output in nominal dollars is

$36

If you can buy 9 DVDs for $126 or you could buy 10 DVD for $130, then the marginal cost of the tenth DVD is

$4

Refer to Scenario 28-1. How many people are unemployed?

3 million

In 2015 the Japanese adult non-institutionalized population was 110.7 million, the labor force was 66 million, and the number of people employed was 63.7 million. According to these numbers, the Japanese labor-force participation rate and unemployment rate were about

59.6% and 3.5%

In 2014, the Italian adult non-institutionalized population was 38.8 million, the labor force was 25.4 million, and the number of people employed was 22 million. According to these numbers, the Italian labor-force participation rate and unemployment rate were about

65.5% and 13.4%

Refer to Scenario 28-1. What is the labor-force participation rate?

93.3%

The circular-flow diagram

All of the above are correct.

Economists hold many positions advising the president and Congress including

All of these are possible positions that economists hold.

Which of the following correctly explains the crowding-out effect?

An increase in government expenditures increases the interest rate and so reduces investment spending.

. If Shawn can produce more donuts in one day than Sue can produce in one day, then

Shawn has an absolute advantage in the production of donuts.

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard. Regarding these two practices, which of the following statements is correct?

Only Joe's and Jim's grocery store purchases are included in GDP.

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?

Ellen's but not Sam's.

U.S. GDP and U.S. GNP are related as follows:

GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

Serena Williams should pay someone else to mow her lawn instead of mowing it herself, unless.

Serena has a comparative advantage over everyone else in mowing her lawn.

Which of the following is an example of an increase in government purchases?

The government builds new roads.

Which of the following is not correct about most economic models?

They contribute very little to economists' understanding of the real world.

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs.. Given this, we know that

Traci has an absolute advantage in chairs.

For which of the following individuals would the opportunity cost of going to college be highest?

a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree

The amount of education that one has is an important factor in the determination of his or her wage rate. This is best described as

a positive statement

The multiplier effect is exemplified by the multiplied impact on

aggregate demand of a given increase in government purchases.

A decrease in government spending initially and primarily shifts

aggregate demand to the left

When we move along a given demand curve,

all nonprice determinants of demand are held constant.

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then

all of the above

The natural rate of unemployment is the

amount of unemployment that the economy normally experiences.

Inflation is defined as

an increase in the overall level of prices in the economy.

Which of the following shifts the long-run aggregate supply curve to the left?

an increase in the price of imported natural resources and an increase in trade restrictions.

If the demand for a product increases, then we would expect equilibrium price

and equilibrium quantity both to increase.

When two variables move in opposite directions, the curve relating them is

downward sloping, and we say the variables are negatively related.

Gwen is an unpaid worker in her family's restaurant. The Bureau of Labor Statistics counts Gwen as

employed and in the labor force.

The MPC is defined as the fraction of

extra income that a household consumes rather than saves.

The law of demand states that, other things equal, when the price of a good

falls, the quantity demanded of the good rises.

When interest rates fall

firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.

Which of the following measures how the level of well-being in a country has changed over time?

growth rate of real GDP per person.

During a recession, unemployment

increases

When taxes decrease, consumption

increases as shown by a shift of the aggregate demand curve to the right.

You lose your job and, as a result, you buy more frozen pizzas. For you, frozen pizza are a(n)

inferior good.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

When a society decides to increase its quantity of physical capital, the society

is in effect deciding to consume fewer goods and services in the present.

What must be given up to obtain an item is called

opportunity cost

The phrase "no such thing as a free lunch" means

people must face tradeoffs.

The economy's inflation rate is the

percentage change in the price level from the previous period.

The difference between economists speaking as scientists or policy advisers boil down to the difference between

positive statements and normative statements.

Whenever I go to the grocery store, I always stop at Starbucks on the way home. Therefore, going to the grocery store causes me to go to Starbucks. This statement is an example of the

post hoc, ergo propter hoc fallacy

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

Which of the following is not included in aggregate demand?

purchases of stock and bonds

Which of the following is most commonly used to monitor short-run changes in economic activity?

real GDP.

If wages are sticky, then a greater than expected increase in the price level

reduces the real costs of production, so the aggregate quantity of goods and services rises.

An increase in quantity supplied

results in a movement upward and to the right along a fixed supply curve.

Tax cuts shift aggregate demand

right as do increases in government spending.

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $200 billion increase in government expenditures shifts aggregate demand

right by $200 billion.

Fundamentally, economics deals with

scarcity

Refer to Figure 5-1. An increase in government purchases will

shift aggregate demand from AD1 to AD2.

Refer to Figure 5-1. An increase in taxes will

shift aggregate demand from AD1 to AD3.

When quantity demanded decreases at every possible price, the demand curve has

shifted to the left.

The positive feedback from aggregate demand to investment is called

the investment accelerator.

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

the long-run aggregate-supply curve to the right.

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

the multiplier effect.

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

the multiplier effect.

Macroeconomics is best described as the study of

the nation's economy as a whole

Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if

the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.

Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

the percentage of the labor force that is out of work, and differences in average income from country to country

Which of the following is not a determinant of the long-run level of real GDP?

the price level.

Refer to Table 3-2. We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for Holland. If we were to do this, measuring milk along the horizontal axis, then

the slope of England's production possibilities frontier would be -4/10 and the slope of Holland's production possibilities frontier would be -3/4.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve.

Which of the following is the best definition of economics?

the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided

A decrease in the number of sellers in the market causes

the supply curve to shift to the left.

When two variables have a negative correlation and the x-variable decreases,

the y-variable increases.

When two variables have a positive correlation,

they tend to move in the same direction.

If the supply of a product decreases, then we would expect equilibrium price

to increase and equilibrium quantity to decrease.

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

The aggregate supply curve is

vertical in the long run and slopes upward in the short run.

The Council of Economic Advisers

was created in 1946 and consists of three members and a staff of several dozen economists.