Macroeconomics Final

Which of the following BEST describes the effect inflation has on purchasing power in the United States over the past several decades?

$100 today has the same purchasing power as $15 in 1972

For each of the following policies, select the type of resource that is the primary focus of the policy. (i) Aid from the IMF for the education for technology workers. (ii) A piece of legislation that bans drilling for oil in Alaska. iii) Laws mandating school attendance for children younger than 18. (iv) State tax credits for the construction of new company headquarters within the state.

(i) human capital; (ii) natural resources; (iii) human capital; (iv) physical capital

If the producer surplus is $1000 and the consumer surplus is $300, social surplus is ________.

1300

Which of the following firms participates in a competitive market?

A corn farmer

Which of the following is not true after allowing for sustained technological advance in the Solow Growth Model?

A diminishing marginal product is avoidable.

Which of the following is true regarding the nature of a progressive income tax system?

A person with higher income pays more tax dollars than someone with a lower income

The town of Franklin has an economy composed entirely of two equally sized specialized tire manufacturers. Both company X and company Z produce race car tires and airplane tires. Company X is better at producing race car tires than Company Z which is better at producing airplane tires. In order to maximize output, Company X should

Abandon the production of airplane tires to fully specialize in the production of race car tires and then trade with Company Z for airplane tires

When fiscal policy is used to manage the economy, there are a number of factors that can delay its impact. Which of the following is an example of a recognition lag?

Although economic conditions seem bad enough to warrant government action, it takes time for economists to confirm that conditions are bad enough.

Which of the following will cause a shift rightward in the supply curve for tobacco?

An improvement in the technology used in the production of tobacco

________ are a form of tax and spending rules that can affect aggregate demand in the economy without any changes in legislation.

Automatic stabilizers

Put the phrases in order from first to last to best illustrate the progression of a properly functioning loanable funds market.

Borrowing requires saving; investment requires borrowing; output (GDP) requires investment

Determine whether the following statement is consistent with the Solow model, modern growth theory, neither, or both.The U.S. government is hoping to increase GDP growth by building a dam on the Mississippi River. Funding construction for the dam is dependent upon efficient taxes and the rule of law

Both

Which of these fiscal policies are supply-side?

Bush tax cuts and Economic Stimulus Act

Suppose that the United States and Canada each produce only two products, televisions and food. The United States can produce 100 televisions a day, 150 pounds of food a day, or any combination in between. (For example, it could produce 100 televisions and no food, 50 televisions and 75 pounds of food, or 150 pounds of food and no televisions.) Canada can produce 300 televisions a day, 330 pounds of food a day, or any linear combination in between. Which of the following statements is true?

Canada has a comparative advantage in producing televisions

What factor(s) affect the demand for loanable funds?

Capital productivity, investor confidence

Which of the following best explains why the United States has shifted from an agricultural economy to a service-based economy?

Changes in the production process

How is it described when a person who's 45 years old saves a large amount of her income for retirement compared to other periods of their lifetime?

Consumption smoothing

In order to earn some extra money to pay for college, you have decided to open your own tattoo parlor one block from campus. You come up with a business plan and realize that you will need financing to get your business off the ground. You borrow money from classmates with the promise to repay them with interest in two years. Is this financing option direct or indirect?

Direct

Which number is higher?

Federal debt

Say that Aliceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 16 units of food per year or 8 units of clothing. Which of the following is true?

Georgeland has a comparative advantage, but not an absolute advantage, in producing clothing.

Suppose an employer can hire four low-skilled workers to move dirt with shovels at $5 an hour, or can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. What will the employer do if the minimum wage increases from $5 per hour to $6.50 per hour?

Hire one skilled worker

Identify which of the following microeconomic topics can have an impact on macroeconomic topics?

How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means?

Suppose that inflation is trending upward. The actual inflation rate for three periods is 0%, then 4%, and then 8%. Based on this statement, which of the following is true?

If someone is using adaptive expectations, the inflation rate in the fourth period will be 8%

You order a $20 sweatshirt online for a Father's Day gift. The shipping charge is $10. You can get free shipping if your order totals $25 or more. Consequently, you order a $5 bobble head doll, even though neither you nor your father really likes bobble head dolls. This is an example of

Incentive

Let's say you own a firm that produces and sells Ping-Pong tables. The name of your company is iPong because your tables have a plug-in jack for all Apple products. To finance a new factory, you decide to sell bonds. Your bonds are rated BBB. How will demand be affected if a ratings agency upgrades your bond rating to AA?

Increase

When ________ contractionary fiscal policy is the recommended choice.

Inflation has reached harmful levels

If the government reduces the retirement age from 67 to 65, what effect will this have on government entitlement programs like Social Security?

It will increase the government's burden from entitlement programs.

Which of the following statements is consistent with Jonathan having a comparative advantage in producing apples?

Jonathan's opportunity cost for producing apples is lower than anyone else's.

Banks create money through which of the following processes?

Lending Money

________ allows a country to seize the market opportunity and trade with other countries which have easier production and lower cost of certain goods in its marketplace.

Low opportunity cost

What role does money play in the circular flow model?

Medium of exchange

If an increase in the price of Nike shoes increases the demand for Adidas shoes, this means that

Nike shoes and Adidas shoes are substitutes.

To find unemployment, you need to calculate

Number of Unemployed Persons / Labor Force

Which of the following would be considered physical capital?

Oven

Which of the following is true regarding the U.S. government's budget?

Over the years, the percentages of mandatory spending in total outlays has increased, while that of discretionary spending has decreased

According to the Solow Growth Model, which of the following is/are the primary source(s) of economic growth?

Physical capital

What must happen to the market price in order for a shortage to be eliminated?

Price must rise.

Which of the following is true regarding the effects of an expansionary monetary policy?

Printing more money will affect real GDP only in the short run because all prices do not adjust fully in the short run.

The production possibilities model illustrates an inverse relationship between two goods or services because

Production of different types with compete for limited resources

If demand decreases and supply remains constant, what happens to the market equilibrium?​

Quantity rises and price falls.

What is the term that describes a company's combining several home mortgages together and selling them as a new financial instrument?

Securitization

Growth theory began with _____________, which was introduced in _____________.

The Solow growth model; the 1950s

Suppose that the United States and Canada each produce only two products, televisions and food. The United States can produce 100 televisions a day, 150 pounds of food a day, or any linear combination in between. (For example, it could choose 100 televisions and no food, 50 televisions and 75 pounds of food, or 150 pounds of food and no televisions.) Canada can produce 300 televisions a day, 330 pounds of food a day, or any linear combination in between. Which of these trades could make both the United States and Canada better off?

The United States could trade Canada 20 pounds of food for 17 televisions.

Which of the following is a decision an Italian restaurant owner makes in the long run?

The decision to stay in business

Suppose workers attend several skill-building workshops, increasing their labor productivity. How is this represented by a production possibilities frontier?

The entire PPF shifts out

Suppose that the president has decided to increase government spending by building more libraries. The legislation was rushed through Congress and enacted without any delay. From here, the libraries will take 10 months to plan and 2 years to build. Which of the following is true?

The planning and building of the libraries represents an impact lag of this policy.

A budget constraint model differs from production possibilities model in that, typically

The production possibilities model demonstrates diminishing returns

It is the end of the year and party supply stores have added the things needed for a fantastic New Years Eve party. According to the law of supply, what scenario would you expect to see with the party supply stores?

The supply of New Year's party supplies have increased since November.

The country of Norway has offered free college to students and some universities even offer free tuition to international students. Why would the Norwegian government support this tuition free environment?

To facilitate capital deepening by getting a better educated populace.

What is the term for the voluntary exchange of goods and services between two or more parties?

Trade

Which of the following statements provides the clearest reason for why it is beneficial to the U.S. when China buys U.S. government bonds?

When China owns U.S. financial assets, they help to keep domestic interest rates low.

How do central bank policies affect interest rates?

When the central bank decides to increase the discount rate, then other interest rates increase.

The small country of Benin has many international trading partners between not only countries close by, but also larger countries such as the U.S. What is one of the benefits that Benin receives from lowering its trading barriers?

Workers and firms in the country can now specialize in areas because other goods and services are found through trade.

In which of the following cases are you likely to be adversely affected by unexpected inflation?

You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%.

Overall, free trade results in ________.

a decrease in price and an increase in quantity

You go to Starbucks and see the price of a tall latte is quoted as $3.00. You buy the latte and pay with $3.00 cash. In the first instance money serves as ___________ while in the second instance money serves as ___________.

a unit of account; a medium of exchange

In order for a price floor to be binding, it must be set

above equilibrium

A price floor when it is set ________ the equilibrium price creates ________.

above equilibrium, excess supply

Which of the following are common reasons for trade being restricted?

all of these (national defense, lobbying by special interest groups, preventing dumping of products onto the market, protecting new industries)

An increase in the interest rate will result in an increase in the

amount that households are willing to save

Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, the government passes legislation making it illegal to sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. As a result of the government legislation, there will be

an excess supply of Big Macs.

All of the following qualifies as capital in economics except

bonds and stocks.

If the Fed wants to increase the quantity of money in the economy, it can

buy bonds

In 2011, with which country did the United States run the largest trade deficit?

china

Using the same resources, the country of Zanzibarus produces 12 million pounds of beef or 5 million pounds of pork. Zanzibarus has a (n) ________ in beef in contrast with pork production.

comparative advantage

In 2010, Microsoft will pay corporate income tax to the federal government based on the company's ________.

corporate profits

______ unemployment is the area in which policymakers can have their greatest impact

cyclical

The presence of secondary markets ______________ the interest rates that firms have to pay on bonds issued by them.

decreases

In order to earn some extra money to pay for college, you have decided to open your own tattoo parlor one block from campus. You come up with a business plan and realize that you will need financing to get your business off the ground. You appear on a reality show where you pitch your idea to potential investors. Someone likes your business idea, and they write you a check to get things going. Is this financing option direct or indirect?

direct

Unable to borrow from other banks, University Bank is forced to turn to the Federal Reserve for needed funds. What is the interest rate the Federal Reserve will charge University Bank called?

discount rate

When we look at tariffs and quotas,

domestic producers are indifferent between an equivalent tariff or quota being imposed.

An open market purchase of US Treasury bonds by the central bank will ________ credit conditions for private firms.

ease

What phrase describes the situation that's occurring when the economic activity is declining? (or is growing at a negative rate?)

economic contraction

If building new capital is costless and the capital depreciation rate is zero, then an economy will reach a steady state in which the marginal product of capital is

equal to zero

When the Federal Reserve engages in quantitative easing, _________ monetary policy is used, with the desired effects being that real GDP ____ and unemployment ____

expansionary, rising, falling

Imagine you live on the planet Krypton. The loanable funds market on Krypton is thriving and life is good. However, the planet is very, very old and the great scientists and philosophers on the planet have begun discussing openly that the planet may be on the verge of destruction. Even if the great thinkers are wrong, the loanable funds market will change in the short term. Specifically, the supply of loanable funds is expected to ____________ and as a result the amount of economic output in the future is expected to _______________.

fall; decrease

The more bonds the Fed sells, the __ the money supply grows, and the__ the inflation rate will be.

faster; higher

Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, the government passes legislation making it illegal sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. As a result of the government legislation, there will be

fewer Big Macs bought and sold than before

____________ are on the demand side and _____________ are on the supply side of the loanable funds market.

firms and governments; households

The idea of convergence suggests that when underdeveloped nations begin to develop, they typically have _____________ growth rates as they catch up to the developed nations.

higher growth rates

The circular flow model shows how resources and final goods and services flow through the economy. There are two groups in the circular flow model. Which of the following make up the two groups?

households and businesses

Which of the following represents frictional unemployment? i. The demand for refrigerators falls when the economy enters a recession and refrigerator manufacturers lay off some of their workers, one of which is Anthony ii. John worked for General Motors who decides to close its U.S. factories and relocate its car manufacturing division to Mexico. iii. After quitting his job in Ohio to be closer to his family in California, Jake is now looking for a new job.

iii

There is a tax rebate that everyone in the nation receives from the government of $1000. The market for laptops notices a shift because of this. What effect will this rebate have on the laptop market?

increase demand

Which of the following will result in a movement along the aggregate production function?

increase in the countrys capital stock

All else equal, increasing unemployment insurance will cause

increase unemployment

Automobile manufacturers are planning to adopt a new technology that will increase their overall productivity by 30%. As a result, the amount of equilibrium investment will ________________ and equilibrium interest rate will _________________ in the loanable funds market.

increase; increase

We pay higher prices for TVs today than people used to pay 10 years ago. This is due to

inflation

Which resource is likely to have contributed to South Korea's rapid economic growth?

institutions

What is true about savings banks and credit unions?

institutions that accepts money deposits and then uses these to make loans.

Holding other factors constant, when baby boomers retire and they begin to switch from savings to consumption, which of the following is likely to increase?

interest rates

Suppose the price of a bond is initially $900 but increases to $950. What is happening to the interest rate on that bond?

it decreases

Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate demanded by consumers compared to the quantity of chocolate demanded before the price floor?

it will decrease

In the long run, important sources of an increase in a nation's economic growth include a

labor force growth

Moral hazard is associated with which of the following Federal Reserve bank functions?

lender of last resort

The concept of scarcity in economics refers to

limited resources and unlimited wants

Banks are financial intermediaries because they

link savers who deposit money and borrowers who seek loans.

In the market for loanable funds, _____ flow to borrowers from banks.

loans

Suppose there is a country where factory production creates a lot of the air pollution. What could be a possible trade-off if the country wanted to lower the levels of pollution?

lower national income

If the Fed ultimately wants to lower interest rates in the economy, then it should

lower the discount rate.

If the United States _______ business taxes to foster growth, this would be included in an _________ growth model, as opposed to an _________ growth model.

lowered; endogenous; exogenous

Suppose that Marie is buying bananas. She decides that she would like to purchase three bananas at the price of $0.25/banana but not a fourth banana. Which of the five foundations of economics best describes Marie's thinking?

marginal thinking

Gross Domestic Product (GDP) is the total market value of all

market value of all final goods and services produced within a nation during a specific period of time

If seashells, in 1200 BCE, were used in a trade for a yard of linen, what function of money would be represented?

medium of exchange

What will we never do in a world of scarcity?

meet all of society's wants

The M2 money supply consists of everything in the M1 money supply, savings deposits and which of the following?

money market mutual funds

Which of the following not likely to lead to economic growth?

more immigrant workers are added to a nation

Economists use the concept of ceteris paribus to examine a change in ____________ in a model, while assuming that all other variables remain constant.

one variable

What tool might the Fed use to boost the economy during a recession?

open market operations

Which of the following institutions will most accurately explain the impact of corruption on economic growth?

political stability and the rule of law

All of the following can result in economic growth except

population increase

According to the Solow Growth Model, the marginal product of capital is

positive

An increase in consumer surplus is caused by

price ceiling

Rent control is an example of

price ceiling

Suppose the prices of homes go up by 10 % and the prices of concert tickets rise by 20%, which will have the larger impact on the CPI?

price of homes

The difference between the willingness to sell a good and the price that the seller receives for it is

producer surplus

Political stability and property rights protection

promote economic growth

The _____ is the sum of past _____.

public debt; budget deficits

If you wanted to compare economic well-being over time and across countries, the data you would use is:

real per capita gdp

According to economists today, economic growth depends on

resources, technology, and institutions.

If time preferences among U.S. consumers become stronger, then we can expect consumption of which of the following to decrease?

retirement plans

If the Fed wants to decrease the quantity of money in the economy, it can

sell bonds

According to the Food and Drug Administration, "...the ultraviolet (UV) radiation from these devices [sunlamps and tanning beds] poses serious health risks." As a result of reading this, the local mayor decides to introduce legislation that will put a 10% excise tax on tanning consumers. From an economic point of view, this will

shift the demand curve leftward for tanning.

A large group of fans are upset about the high price of tickets to many events. As a result of their lobbying efforts, a new law caps the maximum ticket price to any sporting event at $50. Assume there are a fixed amount of seats in the stadium, all seats are available to be sold, and the price of tickets before the ceiling was at an equilibrium point above $50.The price ceiling will create a ___________ of tickets, which will be greater if demand is more _______________, and _________ people will attend the events.

shortage, elastic, same number of

In 2007, the Federal Reserve lowered interest rates in order to stimulate the economy. Which of the following is a possible explanation as to why this policy failed to restore the economy to long- run equilibrium

since monetary policy shifts the aggregate demand curve, it was not able to deal with the aggregate supply issues that led to the Great Recession,

Which of the following is the second largest source of tax revenue for the U.S. government?

social insurance tax

The limiting of one's work to a particular area is referred to as

specialization

Creative destruction would be associated with which of the following types of unemployment?

structural unemployment

What is excluded from the official calculation of the unemployment rate?

students who are not working and not looking for work

If technological growth and innovation is halted over a protracted period, which CPI bias problem is likely to persist?

substitution bias

Suppose that the equilibrium price of a bike is $250. The government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, there will be

supply and demand decrease

Good weather and heavy winter rain increases the supply of agricultural products. This means that at any given price, a higher quantity will be supplied. Conversely, a drought would shift the

supply curve to the left

Suppose that U.S. citizens suddenly become wealthier. As a result, the ____ for/of loanable funds ____, and borrowers are able to issue ____ stocks and bonds to finance capital improvements.

supply; increases; more

What is the key difference between the modern growth theory and the growth theory as envisioned by Solow?

technological change is endogenous in the new growth theory and exogenous in the Solow theory

Which of the following is a commonly cited reason for a decrease in the unemployment rate between the 1980s and today?

the baby boomer pop reaching middle age

Which of the following are not parts of a bond?

the default risk

Suppose a law is passed in Congress limiting the amount of ownership of foreign debt? Based on this we would expect

the interest rate on treasury bonds will increase

When higher prices result in a lower quantity demanded, economists call this relationship

the law of demand

Even when inflation rates are high, you don't see vending machines on your school campus adjusting prices frequently. This is an example of

the menu costs of inflation

The law of increasing opportunity costs states that

the opportunity cost of producing a good rises as a society produces more of the good

If you were describing consumer surplus, you would say it is

the social surplus minus producer surplus.

A friend of yours has an interview with an economics consulting firm and has been asked to discuss a microeconomics topic. Which of the following topics would you recommend that your friend discuss?

the study of how prices are determined in the baseball card industry

Assume there is a required reserve ratio of 10% and that banks keep no excess reserves. In which of the following scenarios is there a bigger increase in the money supply. i. Jane takes $1,000 from under her mattress and deposits it into a checking account. ii. The Fed purchases $1,000 worth of government securities from a commercial bank.

they both increase the money supply by the same amount

How would a balanced budget amendment change the effect of automatic stabilizer programs?

they would lose flexibility because spending could not increase unless funds were there

Economists would say that the decisions we make are influenced by

trade offs

Which of the following is not a component of Gross Domestic Product?

transfer payments

Which of the following function as an automatic stabilizer during business cycles?

unemployment compensation

Around the world oil is priced consistently in United States dollars. In economic terms this is an example of:

units of account

With accelerated inflation In the 1980s middle-class Americans benefited primarily because

value of debt fall and is easier to repay

The opportunity cost of attending college is likely to be highest for a high school graduate

who is capable of playing a well-paid professional sport.