Straighterline Macroeconomics
If planned aggregate expenditure (PAE) in an economy equals 3,000 + 0.75Y and potential output (Y*) equals 12,000, then this economy has:
no output gap
Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below. The opportunity cost of making a calculator for Smith is ______ and for Jones it is ______.
0.10 computers; 0.05 computers
Based on the following information, what is the amount of public saving? Federal Govt: Receipts 2,500, Expenditures 2,000 State and Local Govt: Receipts 1,200, Expenditures 1,500
+200
The decision about how much money to hold is an application of the:
cost-benefit principle
If a nation restricts imports, it will:
decrease the total value of goods and services produced in that nation.
When Argentines increase their savings in U.S. dollars, the U.S. money:
demand curve shifts to the right
Features of the labor market that are likely to cause structural unemployment include all of the following except:
differences in the skills and experience of workers.
Government policies that increase the long-term economic growth rate by a small amount result in ______ in average living standards.
large increases
If commercial banks are maintaining a 4 percent reserve/deposit ratio and the Fed raises the required reserve ratio to 6 percent, then banks will ______ their loans based on current deposits, and the money supply will _____.
decrease; decrease
The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:
for businesses and consumers to borrow money.
House prices in the U.S. increased dramatically _____, and decreased dramatically ______.
from 2001 to 2006; from 2007 to 2009
In the short run, with predetermined prices, when output is greater than planned aggregate expenditures:
planned investment is less than actual investment.
The decision about the forms in which to hold one's wealth is called the ______ decision.
portfolio allocation
The value of the marginal product of new capital increases when the:
productivity of new capital increases.
Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect:
the quantity supplied of doughnuts to decrease.
Whenever the quantity demanded is not equal to the quantity supplied, the quantity that is actually sold in the market is:
the smaller of the quantity demanded and the quantity supplied.
As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called:
the substitute effect
GDP would be a better measure of economic well-being if it included:
the value of leisure
Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:
the value she places on seeing the movie
Bank depositors will not lose their deposits in a banking panic if:
there is 100% reserve banking
Economists use abstract models because:
they are useful for describing general patterns of behavior.
In the short run, ______ determines output, and in the long run ______ determines output.
total spending; potential output
Planned investment may differ from actual investment because of:
unplanned changes in inventories
Intermediate goods and services are ______ production and ______ counted in GDP.
used up in the process of; are not
The cost-benefit model used by economists is:
useful because most people follow it most of the time.
The self-control hypothesis suggests that people:
want to save, but lack the discipline to refrain from consuming.
Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.
wash clothes; bigger
Research confirms that government provision of infrastructure:
promotes economic growth
Velocity is determined by:
payments methods and technology
A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year?
$13.05
Refer to the table below. The average cost of 4 units of this activity is: 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225
$25
Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. The benefit to Matt of driving to campus to buy the concert ticket last week was:
$4
The following table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase.
$400
In Macroland there is $12,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 12.5%, deposits in Macroland equal ______ and the money supply equals _______.
$48,000,000; $54,000,000
Real GDP per person in the Canada was $7,377 in 1950. Over the next 48 years it grew at a compound annual rate of 2.0%. If instead real GDP per person had grown at an average compound annual rate 2.5%, then real GDP per capita in the Canada in 1998 would have been approximately ______ larger.
$5,049
Jack has a ticket to see Bo Bice for which he paid $30 yesterday. He takes an unpaid day off from work to get ready for the concert. When he arrives at the concert, five different people offer him $70 for his ticket. Jack decides to keep his ticket. At the time he makes this decision, his opportunity cost of seeing Bo Bice is:
$70
In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the expenditure line is:
0.75
In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The slope of the expenditure line is:
0.80
In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives induced expenditures?
0.8Y
If the money supply equals 2,000, velocity equals 3, and real GDP equals 4,000, then the price level equals:
1.5
The table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. The Chair of the Economics Department at State U says that fundraising employees should be hired as long as their marginal benefit exceeds their marginal cost. If the University follows this advice, then ______ employee(s) will hired, and the net benefit (total donations minus total labor costs) will be ______.
2; $25,426
Assume point A on a linear production possibilities curve represents the combination of 12 coffees and 3 cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis and cappuccinos are on the horizontal axis. The absolute value of the slope of the production possibilities curve between points A and B equals:
3
The data below describe the economy of Econland: Public saving in Econland equals:
5
The money demand curve will shift to the left if:
ATM machines are introduced
The ______ is the rate of increase of all prices except ______.
core rate of inflation; energy and food
Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?
Dan has the comparative and absolute advantage in sandwiches.
Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, the government budget deficit equals:
G - T.
Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore:
Gertie should buy the jeans because the price is less than her reservation price.
Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?
Lewis should specialize in pies, and Cathy should specialize in cakes.
Refer to the figure above. What might cause Supply to shift from the Original Supply to the New Supply?
New technology reduces the amount of coffee beans necessary to make a good-tasting pot of coffee.
Refer to the figure below. Which of the following is true?
Points B, C, E and F are efficient.
Suppose that Nepal invests less in new factories and equipment than does the United States. This will likely cause:
The U.S.'s production possibilities curve to shift outward faster than Nepal's.
Which of the following workers is most likely to lose his/her job during a recession?
construction worker
In symbolic terms where Y equals real GDP, POP equals total population, and N equals the number of employed workers, Y/POP must equal:
Y/N×N/POP.
You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10% off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15% savings. Should you drive downtown to buy the TV?
Yes, because you will save more than $20.
In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives autonomous expenditures?
[790 - 700r]
In the United States saving is allocated to its most productive use by:
a decentralized, market-oriented financial system.
Developing new products and services as well as introducing new production methods are among the ways that ______ increases average labor productivity.
an entrepreneur
Refer to the figure below. Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.
an expansionary; raise
Refer to the figure above. Assume the market is originally at point W. Movement to point Y is a combination of:
an increase in supply and an increase in quantity demanded.
Any combination of goods that can be produced with currently available resources is an
attainable point
Dividing the total cost of n units of an activity by n reveals the:
average cost
When an individual deposits currency into a checking account:
bank reserves increase, which allows banks to lend more and increases the money supply.
You are trying to decide whether to purchase the latest Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should:
borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13.
In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______.
buys; increases
Inflation reduces economic efficiency because it does each of the following except:
change relative prices
Consumption spending includes spending on:
durables, nondurables, and services.
Money serves as a basic yardstick for measuring economic value (a unit of account), allowing:
easy comparison of the relative prices of goods and services.
The marginal benefit of an activity is the:
extra benefit associated with an extra unit of the activity.
Moe divides his time between studying Physics and studying Economics. His production possibilities curve for his final grade in each class is shown below. According to Moe's PPC, moving from a 70 to an 80 in economics:
has a lower opportunity cost than moving from an 80 to a 90.
Although GDP is not the same as economic well-being, high levels of GDP are positively correlated with all of the following except:
higher rates of infant mortality.
One of the serious drawbacks of the deposit insurance system in the United States is that:
if insured intermediaries make many bad loans, the taxpayers may be responsible for covering the losses.
Suppose that the owner of a local ice cream store, knowing that demand for ice cream is higher when the weather is warmer, always charges a price in cents for a scoop of ice cream that is equal to two times the current outdoor temperature, measured in Fahrenheit (so that if it is 90 degrees outside, the ice cream is $1.80 per scoop). This type of behavior is ______.
inconsistent with the key assumption upon which the basic Keynesian model is built.
Refer to the figure above. Moving from demand curve D1 to demand curve D2 illustrates a(n):
increase in demand
The introduction of a new technology that raises the marginal product of new capital will:
increase real interest rates and the equilibrium quantity of saving supplied and demanded.
The introduction of a new technology that increases the productivity of labor will:
increase the demand for labor
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be ______ by approximately ______ to eliminate any output gap.
increased; 250
When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:
increases by more than $1,000,000
In the long run, increases in output per person arise primarily from:
increases in average labor productivity.
The Federal Reserve can decrease the money supply by:
increasing reserve requirements
Globalization can increase wage inequality in the United States if international competition is primarily in industries requiring ______ workers.
low-skilled
Countries with high real GDP tend to have ______ infant mortality rates and ______ literacy rates than countries with low real GDP.
lower; higher
The field of economics that would be most concerned with a recent fall in interest rates is:
macroeconomics
Which branch of economics is most likely to study differences in countries' growth rates?
macroeconomics
Buyers and sellers of a particular good comprise the:
market for the good
One problem with using monetary policy to address "bubbles" in asset markets is that:
monetary policy is not a very good tool for addressing the problem of inappropriately high asset prices.
A measurement in terms of current dollar value is called a(n) ______ quantity.
nominal
If the demand for steak increases as income increases, this means that steak is a(n):
normal good
If an economy produces 3 million oranges that sell for $0.25 each and 100,000 cars that sell for $25,000 each, then when the market value of total output is calculated:
oranges receive a smaller weight than cars.
If all prices adjusted immediately to balance the quantities supplied and demanded for all goods and services:
output gaps would not exist
In the short run, total spending affects ____, and in the long run total spending affects ______.
output; prices
C + Ip + G + NX equals
planned aggregate expenditure.
Capital income includes:
profits, rent and interest
Financial intermediaries, such as commercial banks, help borrowers, particularly small borrowers, by:
provide credit that may otherwise not be available
From an economic perspective, the best response to increased wage inequality is to:
provide transition aid to disadvantaged workers.
If government spending increases by $1 million while net taxes are unchanged, then:
public saving decreases
Refer to the figure below. If the Federal Reserve wants to set the nominal interest rate at 1%, it must conduct open market ______ to set the money supply at _____.
purchase; 900
Inflation is a measure of the ______ of prices; the CPI is a measure of the ______ of prices.
rate of change in the level; current level
For an economy starting at potential output, a decrease in planned investment in the short run results in a(n):
recessionary output gap
Refer to the figure below. Based on the diagram, if potential output equals 5,000 and the real interest rate is 5%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.
recessionary; reduce
Arthur is an unskilled worker who is currently unemployed. He has been offered a job that pays $40 a day, but he is currently receiving unemployment insurance benefits equal to $50 a day, so he chooses not to accept the job and to continue looking for a better job. Arthur is ______ unemployed.
structurally
Two types of bias that tend to cause the CPI to overstate the "true" rate of inflation are the ______ bias and the ______ bias.
substitution; quality adjustment
The inflation rate can be calculated as the percentage change in:
the CPI
the Federal Reserve System is:
the central bank of the United States.
In reference to short-term economic fluctuations, the "trough" refers to:
the low point of economic activity prior to a recovery.
If average labor productivity in two countries is the same, average living standards will be lower in the country with:
the lower share of population employed.
If in the economy, business saving equals $240 billion, household saving equals $15 billion and government saving equals -$150 billion, what is the value of national saving?
$105 billion
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending Elite U is:
$70,000
Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Based on last month's data, Joe's opportunity cost of selling a truck is selling:
1 car
A consumer expenditure survey reports the following information on consumer protein spending: Using 2005 as the base year, by how much does a "cost of protein" index increase between 2005 and 2006?
13.4 percent
Refer to the figure below Based on the figure, and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending decreases by 1,000, then the new short-run equilibrium output (Y) is equal to:
16,000
The U.S. Congress instituted a system of deposit insurance for banks in:
1934
Refer to the table below. Pat's opportunity cost of delivering a pizza is making:
2/3 of a pizza
Based on the labor market diagram below, if the minimum wage is set at $10 per hour, there will be ______ unemployed workers.
22
High Tech, Inc. produces plastic chairs that sell for $10 each. The following table provides information about how many plastic chairs can be produced per hour. How many workers will be hired if the hourly wage for workers is $30?
4
Refer to the figure below. For Pat, the opportunity cost of removing one bag of trash is planting:
5 bulbs
Refer to the figure below Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:
800
In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Autonomous expenditure equals:
900
Planned aggregate expenditure (PAE) equals:
C + Ip + G + NX.
The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. Why?
Higher gas prices increased the cost of driving a SUV.
Which of the following would not be studied in macroeconomics?
How a sharp increase in gasoline prices is likely to affect SUV sales.
In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, what would be the impact on induced expenditures of a one-percentage-point increase in the real interest rate?
Induced expenditures would not change.
Refer to the figure below. If this restaurant goes from producing 20 to 25 pizzas per hour, then which of the following statements is true?
It has to give up fewer than 12.5 salads.
You have noticed that your next-door neighbor, Mary, always works in the garden, and her husband, Joe, always walks the dog. You conclude that if Joe and Mary are efficient, then it must be the case that:
Joe has a comparative advantage in walking the dog
Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways?
More drivers would drive on the non-toll road, making the toll road less congested.
Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not?
No single person's reservation price to clean the park makes it worth cleaning it.
The proposition each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output, is known as:
Okun's law
Which of the following policies would be expected to increase private saving?
Replacing the income tax with a consumption tax
One trend in labor markets is:
a slowdown in real wage growth in the United States since 1973.
Changes in autonomous consumption could be the result of:
changes in housing prices
The participation rate is the number of people:
employed and unemployed divided by the population aged 16 years and older.
Short-run equilibrium output is the level of output at which actual output:
equals planned aggregate expenditure.
Saving is a(n) ______ and wealth is a(n) ______.
flow; stock
You are the Minister of Trade for a small island country with the following annual PPC: You are negotiating a trade agreement with a neighboring island with the following annual PPC: As soon as you see the other island's PPC, you realize there are:
gains from trade because your island has a comparative advantage in coconuts.
If the nominal interest rate is below the equilibrium value, then the quantity demanded of money is ______ than the quantity supplied of money, bond prices will ____, and the nominal interest rate will ____.
greater; fall; increase
An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico.
increases; expansionary
In the long run, total spending only influences:
inflation
The real costs of inflation to society include:
interference with long-term planning
GDP equals the value added by producers of:
intermediate goods and services, as well as final goods and services.
In the base year, real GDP ______ nominal GDP.
is equal to
If firms sell less output than expected, planned investment:
is less than actual investment
From a macroeconomic perspective, the problem of low household saving has probably been overstated because:
it is national saving, not household saving, that allows an economy to accumulate new capital.
Money serves as a medium of exchange when:
it is used to purchase goods and services.
Wages and salaries are examples of:
labor income
Workers in durable-goods industries are ______ workers in service industries to lose their jobs during a recession.
more likely than
Points that lie below the production possibilities curve are inefficient because:
more of one good could be produced without producing less of the other
The figure below shows Becky's daily production possibilities curve for dresses and skirts. Relative to point X, at point Y:
more skirts and fewer dresses are produced.
The slope of a production possibilities curve is ______ because ______.
negative; producing more of one good requires producing less of the other
When inflation turns out to be different from what was expected, purchasing power is ______.
redistributed
Higher future living standards require:
reduced rates of current consumption.
A recession in the United States ______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) ______ output gap in Canada.
reduces; recessionary
The minimum payment you are willing to accept to do a job is your:
reservation price
An increase in an economy's productive resources will lead the production possibilities curve to:
shift outward
Earth Movers & Shakers operates 3 iron ore mines. The table below shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. Suppose Earth Movers & Shakers needs to fill an order for 100 tons of ore in a single day. If it has no other orders to fill that day, and it's not possible to transfer miners from one mine to another, it should:
take 75 tons from Middle Drift and 25 tons from Mother Lode
The changing age structure of the US population and more efficient labor markets are both possible explanations for:
the decline in the natural rate of unemployment
Physical capital is:
the factories and machinery used to produce other goods and services.
In reference to short-term economic fluctuations, the "peak" refers to:
the high point of economic activity prior to a downturn.
The opportunity cost of an activity includes the value of:
the next-best alternative that must be foregone.
The opportunity cost of money is:
the nominal interest rate
The money demand curve will shift to the left if:
the price level decreases