ECON Final

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the

circular flow diagram

The largest component of GDP is

consumption expenditure

We are MOST likely to see a recession if interest rates on long-term bonds are

lower than interest rates on short-term bonds.

The goals of macroeconomic policy are to:

minimize the effects of recessions and ensure that the economy grows over time

Suppose that the cost of a loaf of bread in Zanadoo is 20 shillings, and this represents a full day's wages for the typical factory worker. The 20 shillings represents a ____ value, whereas the loaf of bread costing a full day's wage represents a ____ value.

nominal; real

A business cycle is

the periodic fluctuation of economic activity

A recession occurs when:

the total level of economic output falls for several months

GDP (gross domestic product) is the:

total market value of all final goods and services produced in the economy in a given year

GDP per capita is measured as

total output divided by the population.

During a _____ the economy reaches the bottom of the cycle.

trough

Which of the following forms of money would best represent fiat money?

A $20 bill printed in 2015

Which of the following would cause the demand for loanable funds to increase?

A new investment tax credit for businesses to expand

Which of the following is an example of monetary policy?

A rise in short-term interest rates

Banks must lend out all their excess reserves in order to change the M1 money supply.

False

The Federal Reserve (Fed) has very little effect on the money multiplier.

False

The fractional reserve banking system requires all banks to keep the total value of customer deposits in their vaults to prevent bank runs.

False

When Mr. Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP?

GDP falls as a result of this change

What event was a major influence on the development of macroeconomics?

Great Depression

What does that mean in terms of investment in and out of the country?

Investment of foreign companies in the country is greater than investment of domestic companies in other countries.

Martha needs to acquire funds in order to expand her bakery. She does not want to give up control of her business, but her credit score is weak due to the recent foreclosure on her home. What should Martha do to acquire these funds?

Issue bonds to willing investors

Which of the following are included as inputs (factors) of production?

Labor, land, capital, and entrepreneurship

There is much debate about whether the U.S. government should eliminate the penny from circulation and instead round all prices to the nearest 5 cents for everyday cash transactions. Which function of money does a penny not serve well?

Medium of exchange

The country of Eggville uses eggs as its official form of currency. All prices in Eggville are shown in terms of eggs, and residents carry around baskets of eggs to buy goods and services. Residents, however, cannot save eggs because they end up spoiling. Which functions of money do eggs serve?

Medium of exchange and unit of account

Which organization determines the beginning and end dates of a recession?

National Bureau of Economic Research

Which of the following is a macroeconomic issue?

South Park experiences an economic boom from increased tourism

Which of the following is not a major function of financial institutions?

To minimize interest rates paid to savers

Bank runs occur when many customers attempt to withdraw deposits from a bank at the same time and the bank is unable to pay all customer withdrawals.

True

Banks typically loan out a portion of customer deposits.

True

The Federal Deposit Insurance Corporation (FDIC) protects bank depositors from bank failure.

True

The state of the economy can affect the amount of excess reserves that banks keep on reserve, thereby affecting the impact of the money multiplier.

True

The total change in the M1 brought about by the money multiplier is affected by the amount of deposits made by households and businesses.

True

When market interest rates fall, the price of an existing bond will rise.

True

The value of cars that the Ford Motor Company produces in a German plant is

a part of U.S. GNP

What items are included in the calculation of GDP using the income approach?

employee compensation, proprietors' income, corporate profits, rental income, and net interest

In the United States, banks keep the entire value of all customer deposits in the bank vault to meet customer withdrawals.

false

Goods and services such as _____ are included in the calculation of GDP.

final goods

The U.S. gross domestic product is equal to the total market value of all

final goods and services produced by resources in the United States

Institutions that acquire funds from savers and then lend those funds to borrowers are called

financial intermediaries

The four types of spending in GDP are personal consumer spending, _____ private domestic investment, government spending, and _____.

gross; net exports

Measurements of GDP do not include the value of ______ to avoid double counting.

intermediate goods

During a ______ the economy is operating at its capacity.

peak

The components of the business cycle are:

peak, recession, trough, and recovery

The components of GDP as measured by the expenditures approach are:

personal consumption expenditures, gross private domestic investment, government purchases, and net exports

A good measure of a country's standard of living is _____:

per‑capita GDP

During a ______ economic growth slows down or turns to negative.

recession

During a _____ economic activity begins to pick up.

recovery

The _____ of a business cycle occurs when economic output begins to grow after the trough

recovery

When a recession ends, _____ participants in an economy feel a recovery is in place.

some

GDP can be found by adding up either all of the _____ or all of the _____ in the economy.

spending; income

Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the

trough