Macroeconomics final exam

The gross national product of a country for a certain year was $340M. If the contribution of the factors of production owned by its citizens towards the production of various goods and services in other countries was worth $140M and the contribution of foreign owned factors of production in the production of goods and services in this country was worth $50M, the gross domestic product of the country for that year was ___

$250M (340-140+50=250)

The table gives data for a nation. What is the amount of the country's GDP? Consumption: 1,500 Interest,Rent,Profit: 250 Investment: 1,000 Depreciation:500 Government Expenses: 4,500 Net Exports: 750

$7,750

If the annual inflation rate in an economy is "x", then $1 borrowed at the beginning of a year will have the same purchasing power as _____ dollars at the end of. the year.

(1+x)

Consider a small software firm that just won a new contract generating $1M in unexpected revenue. What is. the opportunity cost of that firm of using the $1M to buy into a new joint venture that is expected to return $1.5M in one year? Its other alternatives are: I. Leave $1 million in a bank account for the year and earn $50,000 in interest. II. Invest $1 million on writing some parallel code to scale up their operations to generate another $100,000 in profits during the year. The opportunity cost of the new project is $_____M.

1.1

Consider a country with a population of 500M. There are 20M people under the age of 16, 20M who are active in the military, and 60M who are institutionalized. There are an additional 100M who are gladly not employed (because they are retired and/or home-makers) and 100M who are not employed but have given up looking for a job. There are 180M people who are employed but 20M do not have full-time jobs. The unemployment rate is _________%.

10 (500-20-20-60-100-100=200) (20M/200M=10%)

Carolyn's parents have just inherited a sum of $100k. They want to save it for 2 years so that she can use it to pay for medical school. They believe that the rate of inflation for the next two years will be 2% and they find an investment vehicle that will yield a nominal rate of return of 2% per year. In 2022 dollars, the real value of the money that Carolyn will have for spending on medical school is $_____k?

104.0 (100,000*.02= 2000 years) (2000+2000= 4000) (100,000+4000=104,0000

If you placed $100k in a certified deposit for 1 year, to earn 5% nominal interest, then the nominal value of that fund at the end of that 1 year is $____k. Assuming the inflation rate was 2% during the year.

105

By mid-Sommar of the CoViD recession, Economist Paul Krugman predicted an unemployment rate of 30% versus the 20% unemployment predicted by Treasury Secretary Steve Mnuchin. If there are 260M potential workers and 96M not in the labor force by mid-Sommar, then the difference between Paul's forecast and Steve's forecast is _________M more people losing their jobs.

16.4 (260M-96M=164) (164*30%=49.2) (164*20%=32.8) (49.2-32.8=16.4)

The gross domestic product of Wakanda during a particular year was $200B. The expenditure on investment was $16B, the expenditure incurred by the government was $35B, the value of exports was $10B, and the value of imports was $22B. Thus, the expenditure on consumption must be $_____B.

161.0 (Y=C+I+G+(X-M)) (200=C+16+35+(10-22)=161)

In 2019, the US had $13T in Consumption, $3T in Investment, $3T in Exports, and $4T in Imports. The US GDP in 2019 was $____T.

18 (Y=C+I+G+(X-M))

Boeington produces 2 goods: airplanes and tourism. It produced 5k planes during Year 1 but only 3k planes during Year 2. The price of a plane in Year 1 was $200M but it raised to $300M in Year 2 due to how much additional effort was required to debug some autopilot code. Meanwhile, Boeington sold $1T in tourist visits in Year 1 and $1.4T in tourist visits in Year 2, both at the same price per tourist visit. Suppose Year 1 is taken as the base year for the calculation of GDP. The real GDP of Boeington in Year 2 was $____T.

2 (1.4T+(3k*200m) =2T)

If nominal GDP grew by 5% and M2 grew by 3%, then quantity theory of money would predict that real GDP grew by _______%.

2.0

The US has a potential GDP of $20T but a pandemic is expected to reduce GDP to $15T unless the government takes drastic action. If some congressmen promise their constituents that the $2T stimulus in government spending will return GDP back to $20T, then those Congressmen must believe that the government expenditure multiplier is _______ during this pandemic.

2.5 (20T-15T=5T) (5T/2T=2.5)

Based on the information in the table, the unemployment rate is Labor force: 50,000 Employed: 40,000 Under the age of 16: 10,000 Working Age Population: 75,000

20%

The GNP of a country for a certain year was $375B. If the contribution of its factors of production in the production of various goods and services in other countries was worth$200B and the contribution of foreign factors of production of goods and services in this country was worth $75B, the GDP of the country for that year was $___B.

250 (375-200+75=250)

The growth rate of Eduland's money supply in a particular year was 8.5%. What was the growth rate of real GDP if the inflation rate in the same year was 4%.

4.5% (R=N-I)

Suppose that Labor Supply in Wakanda is linear with exactly 0 people willing to work at a wage of $0 and 5 more people willing to work for each $1 increase in the wage. Labor Demand is given by: Ldemand=100-5w . If downward wage rigidity prevents the wage from falling below $12, then ______ people will be structurally unemployed.

40

Base Bank has the following entries on its balance sheet: Reserves: $400M Demand Deposits: $800M Long-term Debt: $300M Cash Equivalents: $450 M Short-term borrowings:$350M Long term investments: $1,000M The total equity of the shareholders of Base Bank is $_____M

400 ((Reserves+Cash equivalents+Long-Term)-(Demand Deposits+Long-Debt+short-term borrowings)=SE)

Suppose that you are indifferent between receiving $10k today or $11k in a year from now and that you are fairly certain that there will be 2% inflation for the next year. In this case, your implicit real interest rate is _____%.

8 (11-10/100=0.01) (0.1-0.02=0.08)

If demand is given by Qd=120-10P and Supply is given by Qs=60+5P, then what is the equilibrium quantity sold?

80

Infi Corporation is a leading manufacturer of smart phones. Every year, customers spend $31B on smart phones manufactured by Infi Corporation but $10B of these sales comes from a leading retailer ( the remaining sales come from customers buying directly from Infi Corp). The retailer sells 70% of its revenue to Infi Corporation, which spends $19B on intermediate goods purchased from its suppliers. Infi Corp.'s value-added to GDP is $____B.

9B (31B-10B= 21B 10B*.7= 7B= 28B 28B-19B= 9B final answer $9B)

Assume that the supply curve for a commodity shifts inward and the demand shifts outward, and the shift in demand is greater than the shift in supply. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by:

A higher price and quantity.

Which of the following factors is expected to cause the demand curve for Gamecock Gear to shift to outwards?

A higher tax on the ale of business suits, a substitute for the gear

Assuming we are producing near full capacity, which of the following is least likely to result from an outward shift in the Aggregate Demand curve?

A inward shift in the Aggregate Supply Curve

Which of the following is likely to generate an outward shift the credit demand curve of an automobile manufacturer, assuming all else equal?

A plan to increase production and expand to newer markets

In 2019, the US had $13T in Consumption, $3T in Investment, $3T in Exports, and $4T in Imports. Which of the following correctly computes the change in US GDP (holding all else constant)?

An increase in expenditure on investment by $2T would increase GDP to $20T.

Which of the following statements is true?

Argument by counter-example is an appropriate way to disprove a blanket statement.

Which of the following groups would prefer monetary policy to ameliorate a recession, as opposed to fiscal policy?

Borrowers

Melody decides to spend five hours working overtime rather than going to the concert with her friends. She earns $10 per hour for overtime work. Her opportunity cost of working is

C. The enjoyment she would have received had she gone to the concert.

Charlize needs to choose between driving and taking a plane to Richmond Virginia. Travelling by plane will cost her $500 and will take 5 hours. Driving to Richmond takes 6 hours, and the required amount of gasoline costs $220. Her opportunity cost of time is $20 per hour. If Charlize borrows her sister's car and pays for only the gasoline, what is his total cost of driving to destination A?

Drive because it will save her $260

Which of the following statements is true of economic reasoning?

Economic reasoning enables agents to male the best use of their scarce resources, like time.

Consider a normal good that follows this pattern. A price floor of $40 will create

Excess supply

An increase in government transfers is considered to be an example of _________ because it _______.

Expansionary fiscal policy; shifts the aggregate demand curve to the right, increasing real GDP

Which does not act on a drag on growth by contraction the population and hence sapping the labor supply?

Extractive Institutions

Among the procyclical variables in Macroeconomics that we have explored, Investment is the most volatile.

False

At the dawn of the great recession, the primary driver to a decrease in aggregate demand was a drop in net exports.

False

Suppose that prisoners do not have dollars to use for petty trades in prison but they do have access to cigarettes that are then used as de facto medium of exchange, store of value, and unit of account by the prisoners. Under these conditions, cigarettes are effectively fiat currency.

False

Which elements of the Demographic Transition caused birth rates to drop?

Female empowerment via Labor Force Participation

In the circular-flow diagram,

Firms are buyers in the markets for the factors of production.

Which of the following statements is true about GDP per worker versus GDP per capita?

GDP per worker is larger than GDP per capita

When the CPI is used to compute the current rate of inflation, which of the following is happening in the computation?

Hold quantities constant

What is not true about ideas and physical capital?

Ideas are free to generate whereas physical capital is costly to produce

Which elements of the Demographic Transition cause mortality rates to fall?

Improved Public Health

Which correctly describes the dynamics of the Demographic Transition?

Mortality Rates initially fall which increases the population growth rates but then birth rates fall so much that population growth approaches 0 and the population plateaus

Which of the following is correct?

Neo-Classical Economists tend to think that free markets will successfully allocate all available factors to production so that the Aggregate Supply Curve is Vertical and Money Neutrality holds so that any Government attempt to stimulate Aggregate Demand simply results in inflation

Which item is included in the calculation of U.S. GDP?

New housing construction

Assuming all else equal, if a household becomes more optimistic about future income, it is likely to cause a(n):

Outward shift in the current credit demand curve of the household.

Patrick Bateman is a 1980s-styled stockbroker. He has had several job offers but he has turned them down because he thinks he can find a firm that better matches his tastes and skills. Christian Wolf has looked for work as an accountant on Wall Street for some time. Although the pay for accountants does not appear to be falling, there seems to be more people applying for jobs than jobs available.

Patrick is frictionally unemployed, and Christian is structurally unemployed

What role does Keynes' concept of animal spirits play in the Housing Bubble preceding the Great Recession?

People believed that housing was a worthwhile investment, which led to an increase in demand for housing that pushed prices up; this confirmed that housing was a good investment, which further boosted demand in an expanding cycle of optimism.

During a recession, when many workers are laid off, what happens to physical capital?

Physical capital becomes less productive, leading firms to reduce capacity utilization

In Romer's model of R&D, knowledge is gained primarily by

Private firms investing in discovering new ideas for profit

Sara and Emily are young lawyers who have never shown any symptoms of CoViD-19; however, for some reason, their office keeps closing down due to coworkers testing positive. They decide to use this latest opportunity to go back down to Charleston for another "girls' getaway" where they intend to again attend parties with young people tightly packed on yachts wearing nothing but swimsuits (no masks). The only cost to them will be renting a place to stay. They identify a cute little beachfront bungalow on the Isle of Palms. They must choose between renting the bungalow for 4 days or 5 days. Which of the following is true if they are optimizing in levels?

Rent the bungalow for 5 days if the net benefit of staying for 5 days exceeds the net benefit of staying for.4 days.

Mary has a linear production possibility frontier (PPF) with intercepts at 29 pens and 16 markers. Rob also has a linear PPF but with intercepts at 19 pens and 9 markers. Which of the following is true:

Rob has a comparative advantage in pens

What did Romer's knowledge vs. physical capital debate with his model of R&D?

Romer showed that learning-by-doing from capital was not supported by the data

High levels of inflation are reflected by a(n) ______ of the PPF.

Shift in

The equilibrium price and equilibrium quantity of X in the year 2017 was $30 and 50 units, respectively. It was seen that, in 2020, the equilibrium price of X had decreased to $10, but the equilibrium quantity had increased to 100 units. Other things remaining the same, which of the following could explain this change?

Shift of the supply curve of X to the right

An expected increase in the market price of oil in the coming year is likely to:

Shift the supply curve of oil inward in the current year.

Which economist did the tedious empirical work to pioneer National Income Accounting, which gave us the GDP data that is so critical to Macroeconomics?

Simon Kuznets

Which of the following statements is true?

Some workers may be willing to work only at a wage rate above the equilibrium wage rate.

The value of production generated by a country's factors of production within the borders of foreign countries during a particular year was $71,000 and the production of foreign factors of production within the borders of the country during the year was worth $100,000. Which of the following is likely to be true in this case?

The GDP of the country is higher than its GNP.

Assume that the budget would be balanced if the economy were still at full employment but that an aggregate demand shock has driven up unemployment. Which of the following must be true?

The actual budget must have a deficit

Okun's Law describes an empirically observed correlation between the unemployment rate (usually plotted on the horizontal axis) and the real output gap (ie potential GDP net actual GDP). Given what you have learned about Macroeconomics, which of the following would you deduce?

The correlation is negative and casual because the labor is a factor of production for the aggregate production function.

Which of the following is the proper definition of the federal funds rate?

The federal funds rate is the interest at which banks lend their deposits with the Fed to other Banks.

The most commonly used monetary policy instrument is _________.

The federal funds rate via open market operations

Which of the following statements comparing the lags of monetary and fiscal policy is accurate?

The policy-making lag for fiscal policy is longer than monetary policy.

Consider a Chinese company that had been exporting goods to the US. If it builds a new manufacturing facility in the U.S. to offshore its production closer to the US market and lower the price of its goods by saving on shipping costs, then how would that effect the balance of payments of payment accounts for the US?

US Current Account would increase (ie move towards a surplus) and the US Financial Account would decrease (ie move towards a deficit).

Which of the following is the primary cause of downward wage rigidity?

Workers would rather there be more layoffs than accept a decrease in their nominal wage

Suppose the economy has unemployment levels close to 15%. Which of the following would be a fiscal policy response that should do the most to unambiguously expand aggregate demand?

a decrease in income taxes

Which of the following results in movement along the demand curve for pencils towards a higher quantity demanded?

a fall in the price of pencils due to the arrival of cheaper 3D printed pencils from Malaysia.

A buyer of a good will want to purchase an additional unit as long as their Willingness to Pay for that additional unit is:

greater than or equal to the price

Suppose that the statement made by Representative Alexandria Ocasio-Cortez's dress at the met gala was so effective that all the big political donors there suddenly called up their Republicans in Congress to insist on more progressive taxation. So the government decides to cut tax breaks certain luxury goods (eg private jets) to make the rich will pay more taxes. What implications would this policy have for the luxury good's market?

increase the equilibrium price and lower the equilibrium quantity of the goods

Consider a normal good that follows this pattern. A price ceiling of $40 will create:

no effect

If the Fed wants to keep the economy from being over-stimulated during an extended expansion, then which policy would it pursue?

sell bonds

when the federal reserve announces that it is increasing the federal funds rate, it is actually going to _______.

sell bonds on the open market until the federal funds rate rises to the new target.

If the Fed wants to raise the federal funds rate through open market operations, it ______.

sells bonds

The value of the country's net exports of goods and services shows that the country's...

value of its exports exceeded the value of its imports.