Econ Final Study Guide
A bank has $100,000 checkable deposits and $30,000 in reserves. If the required reserve ratio is 20% what is the maximum amount of loans this bank can create?
$10,000
Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's excess reserves?
$25,000
In the long run, an increase in investment shifts _________ because of an increased capacity to produce.
The long-run aggregate supply curve
Government purchases are defined as:
The sum of purchases of goods and services from firms by government agencies and the total value of output produced by government agencies.
When new roofing contractors entered the southern California market after the El Nino storms of 1997:
The supply increased
What contributes to implementation lag for discretionary fiscal policy?
The time it takes to secure legislative approval for policy actions
Economic growth can be represented by
a rightward shift of an economy's long-run aggregate supply curve.
In the long run, international trade
does not affect the natural level of employment or the real wage
determinants of net exports
domestic and foreign incomes, relative price levels, domestic and foreign trade policies
A market surplus occurs if the:
equilibrium price is below the actual price
What is a source of wage stickiness?
fixed wage contracts minimum wage laws workers and firms want to avoid complexity of negotiating contracts frequently
The law requires banks to maintain
fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities
An exchange rate system in which governments and central banks do not participate in the currency market is a (n)
free-floating exchange rate system
The three major categories of government spending are
government purchases, transfer payments, and net interest
The value of an economy's total output of goods and services is called:
gross domestic product
The equation of exchange states that
gross domestic product equals the money supply multiplied by its velocity
A cost that farm subsidies and price floors imposes on the rest of the economy is:
higher consumer commodity prices
The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the
implementation lag
The short run in macroeconomic analysis is a period
in which wages and some other prices do not respond to changes in economic conditions
An expansionary fiscal policy:
includes an increase in government government spending Includes tax cuts Increases a government budget deficit or reduces a government budget surplus
In the long run, a country's material standard of living is determined by:
its output relative to its population
the government has a balanced budget if
its total revenues are equal to its total expenditures
What is an example of a bank's assets?
loans mad to customers
what is true if the interest rates were zero?
people will hold their wealth in the form of money rather than in bonds
Supply is best defined as the:
relationship between the quantity of a good or service sellers are willing to offer for sale and the independent variables that determine quantity.
One source of high health care costs is the:
relatively small fraction of health-care expenditures paid directly by patients.
What is the cost of economic growth?
sacrifice current consumption.
All other things unchanged, an increase in personal income tax rates will
shift the aggregate demand curve to the left
All other things unchanged, an increase in government spending will:
shift the aggregate demand curve to the right
An increase in autonomous aggregate expenditures
shifts the aggregate demand curve to the right
Alexa keeps $500 readily accessible in her checking account so that she can take advantage of changes in the prices of other financial assets. This illustrates the
speculative demand for money
Value added is defined as:
the amount by which the value of a firm's final output exceeds the total value of the intermediate goods and services used to produce the good.
the consumption function shows
the amount of consumption at each level of disposable income, holding all other determinants constant
The rise and fall of real GDP over the course of the business cycle suggests that
the economy may not always be in long-run equilibrium
Researchers demonstrate conclusively that drinking 4-6 ounces of ginger ale each day increases life expectancy by 3 years. What happens in the market for ginger ale?
the equilibrium price and quantity rise
The delay between the time a policy is enacted and the time the policy has its effect on the economy is called
the impact lag
An important reason for the rapid increase in output in the computer industry after 1980 was:
the invention of the microchip, a reduction in the size and cost of computers, a great increase in the number of computer producers
We would expect that nations that devote a larger share of GDP to gross private domestic investment
to have higher growth rate in potential real GDP
The rational expectations argument relies on
wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short run aggregate supply curve to shift quickly to restore long run equilibrium
Assuming a constant level of nominal income, the real income of an individual rises:
when deflation occurs in the economy
In the short run, a decrease in the interest rate
will shift the aggregate demand curve to the right
If the velocity of money is constant then a 2% increase in the money supply
would change the nominal GDP by an equal percentage
Suppose that real GDP per capita of a rich country is $40,000. Real GDP per capita in a poor country is $10,000. Suppose that rate of growth of GDP per capita in the rich country is 3.6% per year and in the poor country is 7.2% per year. Using the rule of 72, calculate how many years it will take for real GDP per capita in the poor country to catch up with GDP per capita in the rich country?
40 years
If the population of the United States is 260 million, the labor force is 130 million, and 120 million workers are employed, the rate of unemployment is
7.69%
What causes a movement along the investment demand?
A change in the interest rate
What contributed to the U.S. recession of 2001
A decrease in business investment both for computers and software and in structures An appreciation in the value of the us dollar relative to the currencies of its trading partners A fall in stock market prices NOT an increase in new residential construction
What would result in an increased price of milk?
A shift to the right of the demand curve for milk
What will NOT cause a change in aggregate demand?
An increase in an economy's price level
What increases the demand for money?
An increase in the costs of transferring between money and non-money accounts
What is an advantage of automatic stabilizer?
Because they affect disposable personal income directly, automatic stabilizers act swiftly to reduce the degree of changes in real GDP
what will NOT shift the investment demand curve?
Changes in monetary policy that affect interest rates
The substitution bias in the construction of the CPI arises because:
Consumers alter the goods they buy, switching from relatively high priced goods toward lower priced alternatives.
What is a disadvantage of a free-floating exchange rate system?
Fluctuating exchange rates make international transactions riskier and thus increase the cost of doing business with other countries
What characterizes government purchases in the united states between 2001 and 2011
Government purchases as a share of GDP have increased
An increase in the demand for medical services caused by an increase in the number of people over 65 is most likely attributable to which demand shifter?
Income
There is a ____________ relationship between the quantity of investment demanded and the rate of interest
Negative
The price of apples falls. What happens in the market for apple pies?
The equilibrium price falls, and the equilibrium quantity rises
How does the Fed decide which monetary measure should be the focus of its monetary policy choices?
The fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level.
Suppose that an increase in government purchases of $100 million caused the aggregate demand curve to shift to the right by $350 million at each price level.. What is the value of the multiplier
3.5
If the rate of growth of output is 10% and the rate of growth per capita real GDP is 6% what is the rate of growth of population?
4
What is true about the US national debt?
Relative to the level of economic activity, the debt is well below the levels reached during World war II The ratio of debt to GDP rose from 1981 to 1996 and fell in the last years of the twentieth century; it began rising again in 2002 Judged by international standards, the US national debt relative to its GDP is above average among developed nations
If steak and potatoes are complements, when the price of steak goes up, the demand curve for potatoes:
Shifts to the left
What is an example of income earned but not received
Social security payroll taxes
When would an economist focus on GNP rather than GDP?
When the economist wants to measure total income earned or total amount of factors of production supplied by the residents of a country
According to the permanent income hypothesis,
a change in income regarded as temporatry will not affect consumption much since it will have little effect on average lifetime income.
To eliminate an inflationary gap, policy-makers may pursue
a contractionary policy that decreases aggregate demand
A graph that depicts the relationship between the total quantity of goods and services demanded and the price level is the
aggregate demand curve
What is an automatic stabilizer?
aid to families with dependent children
A decision to produce more investment goods and fewer consumption goods
allows the production of more of both types of goods in the future requires an increase in current savings
In the short run, an increase in net exports causes
an increase in real GDP and the price level
According to Professor Boatai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the case in point, expenditures for protection of persons and property
may involve some crowding out but they also simulated private investment by firms winning government contracts for defense purchases
Vikram, an indian national working for microsoft in New York, sends $300 every month to his elderly parents who live in bagalore, India. this activity will:
not affect the GDP or GNP of either country
The purchase of a bond is
not considered capital.