Test @ terms

f Y < AE:

(YES)the stock of inventories will fall Response Feedback: If AE > Y then expenditure exceeds output so people must be buying goods that were made in the past and put into inventories. Inventories will decrease as a result. The other options all describe the opposite (lower production and building up inventories) or a non-sequitur with comparisons to potential.

If country A has a higher real income per capita than country B then the median real income must also be higher in country A.

False

If two variables have the same rate of growth over the long run, their ratio wil

Remain constant in the long run

Benji got to the McDonalds drive-thru and orders a McGriddles. They hand over $5 and collects the food. In this example, money serves the function of ________.

a medium of exchange

ountercyclical policies can be ________ or ________.

contractionary, expansionary

Present value is the

discounted future value

In lecture, contagion referred to

insolvent banks failing to repay loans leading to other insolvencies

GDP excludes _______ because if that category were included we would "double count" some production.

intermediate goods

Which of the following does NOT describe a group that is employed?

students at a college

Macroeconomics is the study of

the economy as a whole

You are a financial adviser and your client, DeAndre, wants to diversify his portfolio. Which of the following investments will best help him with his goal?

A share of a mutual fund

Suppose that a resident of the U.S. gets a temporary job working in China and earns $10,000 of income while there. This income would count towards: (Check the TWO that apply.)

Chinas GDP US GNP

A movement along an aggregate expenditure line represents a change in

Income

GDP deflator

Nominal GDP/Real GDP x 100

Which of the following changes are likely to cause a drop in output?

The government cuts transfer payments in order to help balance the budget Foreign countries place taxes on U.S. exports (No)The Fed does large-scale open market purchases of Treasury bonds

Which of the following would be considered a final good or service in the calculation of GDP?

The iPad you buy is a final (consumption) good. The iPad BU buys is equipment for a business so that is a final (investment) good. The Disney World tickets are for a final consumer service. The car parts are an intermediate used in manufacturing cars which are the final good.

Which of the following is likely to happen to the demand curve for reserves if the federal funds rate increases, everything else remaining constant?

There will be an upward movement along the demand curve for reserves

The Fed pursued aggressively low interest rates in the early 2000s. The basic Fed model predicts this caused

demand-pull inflation

Refers to the "wear and tear" that a piece of equipment or structure goes through, eventually making it obsolete.

depreciation

You are considering buying a house in either Toronto, Canada or nearby in Buffalo, New York. The Canadian bank offers you a 30-year loan at 4% nominal interest rate and you expect 2% inflation in Canada. The New York bank offers you a 6% nominal interest rate and you expect 5% inflation in the U.S.

expected, U.S.

the ________ is the interest rate that banks charge each other for overnight loans.

federal funds rate

The paper currency that is currently used in the United States is an example of ________ money.

fiat

If the Fed creates additional bank reserves then that is likely to cause the price level to rise

immediately and it will be permanent

f the Fed lowers interest on bank reserves and provides forward guidance that this is likely to last while the economy is operating below potential, that is likely to have the biggest influence on

interest rates on 6 month certificates of deposit

A corporation wants to raise money. What are two ways it can obtain financing?

issuing stock and issuing bonds

The Fed faced the zero lower bound problem during the 2008-2009 financial crisis because:

it could not lower the nominal rate below zero as expansionary policy

Which of the following events are likely to increase the real interest rate based on our model of the credit market?

many businesses plan expansion and construction of new factories the government increasing its deficit Response Feedback: More saving shifts S and lowers the real interest rate. The other two events describe increases in demand for credit which would push up the interest rate.

Fill in the blanks to give the correct definition of GDP: Gross Domestic Product is the ______ value of the _____ goods and services produced _____ of a given place and period of time. (I know this just involves looking up the definition but I put it here so you could ask yourself "why are the wrong options wrong? How do those choices contrast with the right ones?"

market; final; within the borders

There was an unexpected burst of inflation in the late 70s and early 80s that is sometimes called the Great Inflation. The unexpected inflation helped _______ by lowering _____ interest rates on pre-existing loans.

people in debt, real r = i - π so a higher inflation rate lowers the real interest paid on exisitng loans. This is helpful for people in debt who pay interest and harmful for lenders who get paid interest.

The value of all equipment and structures in an economy is referred to as its ________.

physical capital stock

If a country fails to make promised payments on its sovereign bonds what is likely to happen, all else equal

prices for the bonds will fall on the secondary market the bonds' yield will likely rise

A country's GNP would be larger than its GDP when the:

production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the country

If someone asked you "how much did production increase?" you would calculate the growth rate of which statistic?

real GDP

if someone asked you "how much did production increase last year?" you would calculate the growth rate of which statistic

real GDP

When the output gap becomes positive it is possible the economy will overheat. What can Congress and/or the Fed do to prevent overheating?

the Fed could raise the FFR Congress could raise net taxes Congress could decrease government purchases (no)the Fed could lower the FFR

In the basic AE model the AE line slopes up. This slope is:

the marginal propensity to consume

Based on a aggregate production function model where capital and labor are the only factors of production, we can be certain output will increase if​____________.

the total factor productivity increases while the amount of labor and physical capital stock of the country remain constant

What is measured on the vertical axis on the Phillips curve diagram?

unexpected inflation

John, Paul, and George are from England but moved to different countries when they got older. They made a group chat where they compared the costs of rent and other things. In other to be clear they converted all of the prices to their GBP ("pound") equivalents. What purpose did the pound serve in this story?

unit of account

Which of the following events would tend to increase real interest rates in the credit market?

(no)business confidence decreases and firms cut back on expansion plans (Yes)interest in buying electric cars (with cars loans) increases (no)foreign savers provide funding for domestic real estate development the government runs (Yes)a larger deficit business confidence decreases and firms cut back on expansion plans The two events that would increase interest rates involve increases in demand. The other options either lower demand or would increase supply.

Which of the following events would increase the GDP of an economy in the short run? Base your answers on the IS-MP-PC model.

(yes)The Fed pursues a lower target for the federal funds rate (yes)A stock market boom causes consumers to spend more (No)A decrease in planned business fixed investment (No)Lower expected inflation (all else equal)

Based on the quantity equation and the growth rate approximations from lecture, which of the following equations correctly links the growth rate of nominal GDP, the growth rate of real GDP, and the inflation rate?

Growth rate of nominal GDP = Inflation rate + Growth rate of real GDP

In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the

IS curve to the left

You bought a house in Jakarta, Indonesia and another in Cape Town, South Africa. You got a loan at 9% interest in Indonesia and inflation there was 4% while your loan in South Africa was at 7% interest and inflation there was 3%. Based on these data your nominal interest rate was higher in ______ and your real interest rate was higher in _____.

Indonesia, Indonesia

What is the most likely explanation for why American government bonds pay higher interest than Denmark's government bonds?

Inflation is higher in the U.S. than in Denmark

When the Fed buys bonds from or sells bonds to private banks to manage the quantity of reserves, it is referred to as ________.

an open market operation

Which TWO the following changes would increase the steady state capital stock in an economy based on our growth model?

decrease in d increase in A

You collected data and found that the price of laser eye surgery has deceased significantly over the past 10 years but the quantity of surgeries performed has remained the same. What pattern of changes could best explain that?

demand decreased and supply increased

Suppose that he price of insulin injection kits rose from $72 to $98 but the equilibrium quantity remained the same. What pattern of changes could explain that?

demand increased and supply decreased

in the United Kingdom, worries about Brexit have caused consumer confidence to fall. Holding everything else equal, this is likely to lead to _____ in the UK economy.

insufficient demand Low consumer confidence means low consumer spending at any given level of income and interest rate. That would lead to lower aggregate expenditure and insufficient demand. The other options all describe the opposite -- excess demand leading to a more positive output gap leading to higher demand-pull inflation.