Economics Chap 6-11

Which of the scenarios is most likely to result in a decrease of the debt ratio?

an increase in the retirement age for employees

Which of the equations represents the macroeconomic equilibrium condition in the aggregate expenditure (AE) model?

Y=C+I+G+NX

The table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the economy of Kindleberger. The base period for the consumer price index (CPI) is the year 2000. Please specify answers to two decimal places. Year Cost of a basket of goods 2000 $6,150.00 2011 $6,500.00 2012 $5,725.00

100,105.69,93.08 Divide by base year then *100

Which statement best identifies the multiplier effect in the macroeconomy?

A change in aggregate expenditure can affect Real GDP by more than the amount of the change.

All else equal, which scenario would exhibit a country with the most economic growth?

Froland, a country known to be able to resolve most trials and legal issues within a year

Identify each type of retirement account according to whether the individual contributor pays income taxes on the contribution (posttax) or not (pretax) at the time of the contribution.

Posttax Roth IRA Pretax Traditional IRA Social Security 401(k)

Sort the pros and the cons of Employment Insurance (EI).

Pro: Smooths income changes Reduces the burden of unemployment increases job search efficiency and wage outcome Con: increased frictional unemployment creates and incentive to delay looking for a job

What does productivity, or labor productivity, measure?

The amount of goods or services that can be produced by one worker in one hour of work

Use the table to answer the questions. Given the information in the table, select the answer that best describes the condition of this economy in 2007. What is the value of cyclical unemployment in 2009?

The economy is in a recession. -0.25%

Below is a table of mortality rates, expressed as the number of children per thousand live births that die yearly, for children in various countries, along with the country's GDP per capita, an economic measure of the relative standard of living in 2005. Based on this information, what conclusion can be made?

The wealthiest countries have the lowest mortality rates.

Keynesian cross model is another name for the Income-Expenditure model.

True A lower multiplier leads to a more stable economy. True In general, people consume more than they save. True MPC+MPS=1MPC+MPS=1 False The Keynesian cross was developed by John Maynard Keynes. False If the MPC is 0.65, the multiplier is 1.54. True Macroeconomic policy has a larger effect when the multiplier is higher. False If investment spending increases by $240 billion, the first round of GDP increase attributed to increased investment is equal toMPC×$240MPC×$240 billion.

Please use the graph to answer the given questions. Assume the people act rationally. Which of the statements best describes a situation represented by point A? Given the market conditions, what will be the prevailing interest rate? Given the market conditions, how much will be available in loanable funds?

Wayne projects that if he takes out a loan to open another gym franchise, he will earn a lower return than the interest rate he would have to pay, so he decides against it. 10% $50 billion

Please answer the questions related to public choice analysis. Which of the questions highlights the issue at the core of public choice analysis? How does Hershey's "invisible foot" operate in relation to public choice theory?

Why do people vote when one vote is unlikely to sway an election? Politicians acting in their own interest will bring about social harm by magnifying market imperfections.

Complete the sentences with the correct function of money. Norah walks into her favorite department store, Bullseye, to pick out a new dress. She checks out the price tag and is excited to see that the dress is on sale and is now relatively cheaper than another dress she was considering. Here, money is serving as She is especially excited because she has been saving money each week in her piggy bank at home so that she can afford a trip to Florida next summer. The money in the piggy bank is serving as She quickly walks to the checkout line where she pays the cashier for her new dress. At the cashier, money is serving as

a unit of account a store of value a medium exchange

Over the past year, Ionia's money supply increased by $6 billion, $4 billion in bonds were sold to the public, an unused military base was sold for $3 billion, and the government spent $20 billion. Ionia had a budget Determine the amount of Ionia's budget deficit or surplus. Determine the amount of Ionia's tax revenue for the year.

deficit. 13 7

Please use the labels to complete the equation for the multiplier where MPC is the marginal propensity to consume, Y is real GDP, and AE is aggregate expenditure.

delta y / delta AE 1-MPC

Automatic stabilizers lead to changes in taxation and government spending as economic output varies. How do automatic stabilizers impact tax revenue and government spending during a recession? Tax revenue will ___ and government spending will ___ "Suppose that the government is required to balance the budget. Which of the following is an appropriate discretionary approach during a recession and what effect would it have to the economy?"

go down go up Cut government spending to equal tax revenue possibly magnifying the effects of a recession.

One of the key underpinnings of public choice analysis is the assumption that politicians and bureaucrats

make political decisions based on self‑interest, just as individuals and firms do.

Which of the choices is most directly related to cyclical unemployment?

recessions

The labour force is comprised of

the number of people counted as employed and the number of people counted as unemployed.

What is the Misery Index?

the unemployment rate plus the inflation rate

Suppose disposable income increases by $5,000. As a result, consumption increases by $4,300. The marginal propensity to save (MPS) is The marginal propensity to consume (MPC) is

0.14 0.86

Consider the labour statistics for the country of Menap, which consists of five districts and a capital region with varying degrees of poverty. Round your answers to two decimal places. DistrictUnemployed (in millions)Employed (in millions)120203939229295252316163636430305656518184141Capital23235454 What is the labour force in Menap?

414 32.85

Suppose the graph depicts the economy in long‑run equilibrium. Adjust the graph to illustrate the impact of an increase in consumer real wealth. Next, move point E to mark the new long‑run equilibrium. Choose the statement that most accurately describes your results.

AD move up E goes at intersection Prices and wages rise, long‑run equilibrium is restored at the original level, and unemployment equals the natural rate.

Consider the economy represented by the aggregate demand-aggregate supply (AD-AS) graph shown, where output is above full employment output (Y*) and unemployment is below the natural rate. If policymakers are concerned about inflation, which countercylical fiscal policy would be appropriate to address this concern?

AD moves left decrease government spending

Consider the economy represented by the aggregate demand-aggregate supply (AD-AS) graph shown, where output is below full employment output (Y*) and unemployment is above the natural rate. To move out of a recession, the government should

AD moves right decrease taxes and increase government spending.

Suppose the economy starts at an equilibrium GDP level and price level P0 as indicated by the aggregate expenditures curve (AE) labeled AEP0. Show the impact on AE of an increase in the price level to P2 , and then a decrease to P1 . Arrange the segments of the aggregate demand curve (AD1⁢ and AD2) to show how those different price levels affect aggregate demand.

AEP1 (0,5)(10,9) AEP2 (0,1)(10,5) AD1 (8,1) AD2 (2,9)

One explanation for the negative slope of the aggregate demand curve is the "wealth effect" (aka the "real‑balances" effect). What is this effect? According to the wealth effect, what happens as the price level falls?

As inflation occurs, consumers buy fewer goods and services because the value of their accumulated wealth declines. Consumption spending increases.

Classify each example as commodity money or fiat money.

Commodity money: gold horses salt Fiat money: Bitcoins Mexican pesos

Identify what type of unemployment each of the individuals faces. James is an architect who has been laid off owing to a slump in the demand for property. He feels he will have to wait until the economy picks up before he can get a new job. Eric is an experienced project manager who lost his job at a tech start-up because the company's product failed to become popular. He is confident he can get a new job and has already rejected a number of offers. Craig lost his job several months ago. He is having a hard time finding a job that pays him more than unemployment insurance does. Sarah is a recent economics graduate who is entering a difficult labor market, due to a severe recession. She is continuing to look for work but is having a hard time getting interviews. Hamid has just graduated as a lawyer from an esteemed law school. He is confident of getting a job and has already refused a few lower‑paying jobs.

Cyclical frictional structural cyclical frictional

Which statement best describes some of the components of externally held debt?

Public debt held by foreign individuals and entities.

The recent recessions in the US have been referred to as jobless recoveries. What factors allow for, or contribute to, a jobless recovery?

Technology allows fewer workers to be equally productive. Temporary employees are easier to hire and fire as needed.

Which of these causes inflation?

The government printing too much money

Which of the following best defines a financial intermediary?

a financial institution that transforms investor funds into financial assets

Select the correct definition of inflation.

a general and ongoing rise in the average level of prices in an economy

Kentucky Fried Chicken, better known as KFC, holds one of the most desired recipes in the world for their signature, 11‑spice blend used in their fried chicken. In fact, it is so valuable, the recipe is kept in a vault and only two people in the world know the full contents of the recipe. The KFC fried chicken recipe is an example of

a trade secret

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth.

a. A competitive market system encourages economic growth. b. Free trade encourages economic growth. c. Protectionist trade policies restrict economic growth. d. Heavy government regulation restricts economic growth. e. Patents and copyrights encourage economic growth. f. Command‑based systems restrict economic growth.

Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation.

a. The United States federal government, which had almost $15 trillion in debt in 2011 winner b. Karen, a retired school teacher who relies upon her fixed pension to pay for her expenses loser c. Third National, a bank that loaned many people money for home purchases loser d. Joy, who borrowed $40,000 to pay for her college education winner e. Herb, who keeps his savings in an old coffee can loser

Assume the economy can produce either sports utility vehicles (SUVs) or minivans. The graph below depicts the current production possibilities frontier (PPF). Suppose the economy experiences a large increase in immigration. Move the end points of the PPF below to show how the PPF changes. Assume that the increase in immigration affects the economy's ability to produce both minivans and SUVs. This is an example of:

economic growth. Graph move right

If Kelly transfers $500 from her savings account to her checking account, M1 will and M2 will

increase remain the same

The crowding‑out effect describes a scenario in which federal deficit spending causes:

increased interest rates, which reduces private spending.

Match the statements with the appropriate definition. Not all statements will be used. Money is best defined as Barter is best defined as. A double coincidence of wants is

whatever serves society in three functions: medium of exchange, store of value, and unit of account. literally trading one good for another without using money. a situation where two individuals each want some or service that the other can provide.

Investors face various choices regarding what they can invest in, and the choices carry varying amounts of risk. For example, stock prices are much more volatile than bond prices. What is the typical reason why investors would choose to put their money into an investment with higher risk rather than one with lower risk?

Riskier investments typically have higher returns.

Demand‑pull inflation is caused by Cost‑push inflation is caused by

an increase in aggregate demand to an equilibrium point beyond full employment. a decrease in short‑run aggregate supply to an equilibrium point below full employment.

Suppose disposable income increases by $2,000. As a result, consumption increases by $1,500. Answer the questions based on this information. Where appropriate, enter your answer as a decimal rather than as a percentage. The increase in savings resulting directly from this change in income is The marginal propensity to save (MPS) is The marginal propensity to consume (MPC) is

$500 .25 .75

Suppose that the least amount of goods and services that Anthony will consume in a year is .$40,000. Anthony tends to save $0.30 of every dollar of disposable income that he makes. Use the given line to graph Anthony's consumption function for disposable income levels between $0$0 and $200,000.$200,000. Move each endpoint to the appropriate spot on the graph.

(0,40) (200,180)

The full employment level of real GDP is $6 billion for the recently formed island nation of Turtleopolis. Use the line segment to show long‑run aggregate supply on the graph.

(6,8)(6,0)

Suppose that the federal administration plans to fight a deep, ongoing recession with a nationwide plan of increasing infrastructure. Congress approves it and adjusts the budget accordingly to put the plan in motion immediately. Aggregate demand spending components include consumption (C), investment (I), government (G), and exports (X) minus imports (M). Analyze what the aggregate demand and aggregate supply model predicts about the infrastructure plan to answer three questions. Does the level of G increase (+), decrease (-), or stay constant (0)? What likely happens to the aggregate demand (AD) curve? What likely happens to the level of unemployment?

+ The curve shifts to the right (an increase in AD). unemployment decreases

The graph represents consumption (C) as a function of disposable income (DI). Assume the consumption function is linear. What is the value of the marginal propensity to consume (MPC)? Round the value of the MPC to two decimal places.

0.67

please complete the following statements regarding the US government's budget deficit suppose the government reduced tax rates while also increasing government spending, raising the budget deficit to 9% of GDP, while nominal GDP is rising at 6% per year. if this policy continues... 1. the budget deficit will... 2. future tax rates will likely... 3. future government spending will likely...

1. increase 2. increase 3. decrease

Indicate whether the following scenarios represent an increase, decrease, or no change in the long-run aggregate supply (LRAS) curve. Each label may be used more than once .1.The mandatory retirement age in Wonkaland is abolished. 2Wonkaland\'s main export is candy. Candy from this country increases in popularity as consumers all over the world want to buy Wonkalandian candy. 3Since candy from Wonkaland has become an international sensation, factories in Wonkaland double the number of candy making machines. 4The top candy companies in Wonkaland chose to relocate their means of production to other countries around the world.

1. increases the LRAS curve 2. no change is the LRAS curve 3. increases the LRAS curve 4. decreases the LRAS curve

Making the assumption of no compounding interest, suppose you purchase a perpetuity bond from Vandalay Industries for $4,000 with an annual coupon rate of 3% . Specify all answers to the nearest dollar, and assume a discount rate equal to that of the current interest rate. What is the yearly return on your $4,000 investment? Changes in the economy push interest rates up from 3% to 5% . For how much can you sell your bond following this change in market interest rates? Suppose that interest rates instead change from 3% to 1% . For what price will you be able to sell your bond following this change in market interest rates?

120 2400 12000

After a financial crisis hits the country of Barbaria, 88 million people become unemployed. If 45 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.

15.09

Country A and Country B start with the same GDP per capita of $50,000. Country A's GDP per capita grows at a constant rate of 2.8% and Country B's GDP per capita grows at a constant rate of 1.4%. Compute the difference in GDP per capita for these two countries after 100 years in thousands of dollars.

600000

Suppose the Chief Financial Officer (CFO) of a company is interested in raising funds for a major investment by issuing bonds of varying maturity to investors. One of the longer-term bonds being issued can be purchased for $⁢25,000.00 per bond and pays $⁢1,900.00 annually to the investor. What is the annual interest rate on this bond?

7.6

Using the rule of 70, how many years will it take an investment to double if the return is 9%? Round your answer to two decimal places.

7.7 70/9

Answer the following questions about the multiplier. a. How much will GDP change after a $545 billion increase in government purchases, if the multiplier is 1.5? b. How much will GDP change after a $400 billion decrease in government purchases, if the multiplier is 1.25? c. If a $300 billion increase in government purchases leads to a $450 billion increase in GDP, what is the value of the multiplier? d. Given a multiplier of 2, if a $200 billion increase in government purchases leads GDP to rise to $1 trillion, what was the initial value of GDP?

817.5 -500 1.5 600

Rather than simply comparing government revenues and tax receipts, analysts are sometimes interested in the cyclically adjusted budget. What does it mean to consider the cyclical deficit or surplus?

A cyclical surplus or deficit comes about when tax revenue and spending are not at their full employment levels

Classify the events according to their impact on aggregate demand (AD).

A dramatic decline in the average price of houses will decrease AD. Increased concern that a recession is looming will decrease AD. An announcement by the central bank to maintain its existing monetary policy will not change AD. A reduction in government spending will decrease AD. A dramatic improvement in the stock market, causing investors' wealth to rise, will increase AD. A recession occurring in a trading partner's economy will decrease AD. An increase in income tax rates on individuals earning more than $450,000 per year will decrease AD.

Match each creation with the type of legal protection that covers it.

A recipe for really good baked beans told only to the family dog is a trade secret. A hit song should have a copyright. A new fish tank cleaning device needs a patent. A particularly catchy name for a product should have a trademark. Video game code hidden in an underground vault is a trade secret. A new play called The Secret Sauce needs a copyright. A compelling new cartoon character should have a copyright.

Consider an economy with the following tax brackets. 10% income tax rate for the first $20,000 in earnings 20% income tax rate for earnings between $20,001 and $40,000 30% income tax rate for earnings between $40,001 and $60,000 40% income tax rate for earning of $60,001 or above In this economy, a worker earning $60,000 would pay 10% on the first $20,000 earned, 20% on the second $20,000 earned, and 30% on the last $20,000 earned, for a total of $12,000 in income tax. An advocate of supply‑side economics would favor Now suppose that that minimum wage in this economy is $6.73 an hour. Minimum‑wage employees working full time earn $14,000 per year, with no additional benefits. The economy also has a universal welfare plan in effect, which pays unemployed individuals $10,000 per year. Advocates of supply‑side economics would argue that minimum‑wage workers face an implicit marginal tax rate of Now suppose that there is a national debate about which government program is most likely to lead to economic growth. Which program would an advocate of supply‑side economics most likely support?

A reduction of the 40% tax rate in the $60,000 and above tax bracket over 70% job training for minimum wage employees

People who might need to retrieve part or all of their investment relatively soon, such as the elderly, are often advised to invest a higher percentage of their money in bonds, and thus a lower percentage in stocks, than people who can leave the investment untouched for decades. We know, however, that bonds typically have a lower rate of return than stocks. Why would people be advised to invest in assets that give lower average rates of return?

Although stocks have a higher rate of return in the long run, they are much more volatile, or riskier, in the short run. Therefore, there is a higher probability that the value of the stocks will be less than the original value of the investment for people who might need to withdraw the investment in the short run.

Which of the statements best describes why the aggregate demand curve is downward sloping?

An increase in the aggregate price level causes consumer and investment spending to fall, because consumer purchasing power decreases and money demand increases.

Complete the sentences with the correct term.

Cost‑push inflation occurs when short-run aggregate supply decreases until equilibrium output falls below the full employment level. As a result, the price level increases. One possible cause of cost‑push inflation is an increase in the costs of inputs . To combat falling aggregate output, the government may introduce policies to increase aggregate demand to the point where it and short‑run aggregate supply intersect long-run aggregate supply at the same point. These policies cause equilibrium output to return to its full employment level, and the price level increases even further.

The accompanying diagram depicts a hypothetical market for loanable funds. Suppose a small government begins to run a budget deficit and needs to borrow money to meet its obligations for the first time. a. Show the change in the loanable funds market caused by the government deficit by shifting one or more of the curves. Then, mark the new equilibrium using point E. b. Place point B at the point which indicates the amount of private borrowing after the market shift. c. How does this level compare to pre-deficit levels? The effect of additional government borrowing on private borrowing is an example of what concept?

D moves left E goes at intersection B goes(2.5,6) Private borrowing decreased. Crowding out

For each of the scenarios, please decide whether there will be an increase or decrease in short-run aggregate supply or if there will be no change. Changes in the healthcare market cause employers to pay significantly more for health insurance they provide employees. The price of lumber, a commodity, rises drastically due to the effect of heavy winter weather in the American Northwest, where much of the world's lumber is grown. The production of a new type of blade for their combine harvesters, a tractor used to harvest crops, has allowed wheat farmers, like Herbert, to increase productivity by 40%.

Decreases decreases increases

For each of the scenarios, please decide whether there will be an increase, decrease, or no change in aggregate demand. The United States government decides to increase the federal tax rate by 4% for all earners. The newest release of the Consumer Confidence Index shows a steady increase in consumer confidence about the economy A manufacturing boom during the late 1990s has created an oversupply of tractors, a necessary implement in agricultural production. The Federal Reserve, the agency charged with regulating banking and monetary policy in the United States, decides to increase the amount of money available in the economy.

Decreases increases decreases increases

The graph characterizes a market for loanable funds. Shift the appropriate curves to indicate what will happen to the market if there is an improvement in the technology firms use in production. After this change,

Demand moves right the real interest rate increases and the quantity of loanable funds increases.

Complete the sentences with the correct terms.

Demand-pull inflation occurs when aggregate demand increases until equilibrium output exceeds the full employment level. For instance, this can be caused by an increase in consumer spending . Temporarily, both aggregate output and the aggregate price level increase, as resources are beyond capacity. Eventually, the economy returns to long‑run equilibrium when short-run aggregate supply decreases until it and aggregate demand intersect at the same point on the long-run aggregate supply curve. Finally, aggregate output returns to its full-employment level, and the aggregate price level again increases.

Which choice best characterizes the debate over employment insurance?

Employment insurance increases the unemployment rate experienced in the economy. It is difficult to determine whether the economy would be better or worse off without employment insurance.

Consider each person's situation to determine who would be counted among the "unemployed." Laura works 20 hours in a paid position for her local animal shelter. She would like to work more but cannot find a job that offers her more hours. Erik volunteers 10 hours a week at his children's school and does no other work. He sends his resume to 10 potential employers daily. Pete had a knee replacement two weeks ago and will not work at his workplace for the next three months. James quit his job to stay at home with his children and has not worked in 15 years, nor has he looked for work. Who meets the definition of "unemployed"?

Erik

In the context of inflation, which best describes substitution bias?

Evaluating the price of a basket of goods over time does not account for changes that consumers make when the price of a particular good increases.

Determine if each statement is true or false.

False Lenders lose when inflation is lower than expected. False Real interest rates will never go negative. True Lenders lose when inflation is higher than expected. True Loan contracts specify the nominal interest rate. False In 1980, nominal interest rates increased whereas real interest rates decreased.

Complete the sentences about structural and frictional unemployment.

Frictional unemployment includes those involved in job search. Structural unemployment can be caused by minimum wages. Neither frictional nor structural unemployment includes cyclical unemployment. Structural unemployment is affected by the pace of technological progress. Structural unemployment can be caused by efficiency wages. Structural unemployment occurs as a result of labor surplus in a given market. Frictional unemployment can be a result of new people entering the labor force. Neither frictional nor structural unemployment typically declines in times of high economic growth. Structural unemployment can be caused by labor unions.

In Vintland, incandescent lightbulbs are being replaced with fluorescent lightbulbs, which have fewer negative effects and many more significant benefits. However, the energy efficiency of fluorescent lightbulbs has driven down the price of lightbulbs so significantly that incandescent lightbulbs can no longer compete. After six months, everybody has switched to the cheaper and better fluorescent lightbulbs. Assume that Vintland consumes the same quantity of lightbulbs now as they did six months ago. Please select the choice that best describes the short‑run effects of this industrial change on Vintland's GDP and its standard of living.

GDP decreases and standard of living increases.

The accompanying graph illustrates an economy in long-run equilibrium which is denoted by point ELR. Suppose a new technology is discovered which increases productivity. In the graph, demonstrate how the economy moves to its new long-run equilibrium by shifting the appropriate curves and placing point ELR at the new long-run equilibrium.

Graph SRAS moves right E goes at intersection In the long run, the aggregate price level decreases and real GDP (aggregate output) increases.

A household consumption function is shown on the graph. Move the curve to the appropriate place to illustrate a decrease in the consumption function. Then, answer a question about the consequences of a decrease in the consumption function. Which statement is not a (general) consequence of a decrease in the consumption function?

Graph moves down Unexpected changes in income will now result in a smaller change in the level of consumption.

Anna Graham is the new Treasury Secretary, and she is trying to interpret some inflation measures. In year one, the aggregate price level increased by 6% and in year two, the aggregate price level decreased by 5%. Which statement accurately characterizes the changes in the nation's price level?

In year one, the economy is experiencing inflation. In year two, the economy is experiencing deflation.

Classify each of the given events according to the category that best describes how it affects the equilibrium interest rate in the market for loanable funds.

Increase an investment tax credit an increase in large investment Decrease an increase in savings a decrease in investor optimism

The simple Keynesian model makes three simplifying assumptions. What is one of these assumptions?

Increased output will increase the economy wide price level.

Consider the aggregate expenditure model. Suppose there is an increase in real GDP in the economy. Classify each economic variable as to whether it increases, decreases, or remains unchanged when real GDP increases.

Increases: aggregate expenditures consumption imports Decreases: net exports Does not change: govt spending potential GDP MPC exports investment

One reason that the aggregate demand (AD) curve is downward sloping is the "foreign price effect." Choose the option that best describes the foreign price effect.

Inflation makes goods produced domestically more expensive relative to foreign produced goods. Inflation therefore causes net exports to decrease.

Which of the situations is an example of the crowding-out effect on investment as it pertains to macroeconomics?

Jack wants to borrow money to create a cowboy-themed inflatable bounce house for kids called "Wild Wild West." However, the government is running a deficit which has increased interest rates so much that Jack can no longer afford to borrow the money.

Use the line mover tool in the simple Keynesian model to illustrate how a $500 million ($0.5 billion) increase in investment spending impacts the economy. Then, use the point to identify the new equilibrium. Note that in this simple Keynesian model the line AE equals Y is the reference line. The reference line shows where aggregate expenditure (AE) equals aggregate income (Y). The aggregate expenditure line is C plus I, where C represents consumption and I represents investment. Aggregate expenditure (in billions of dollars)

Line moves up point goes at intersection

Consider the table presenting information about an economy's money supply. Currency in circulation $982 billion Checkable deposits $1,334.7 billion Savings accounts $6,312.2 billion Money market mutual funds $695.3 billion Time deposits less than $100,000 $797.3 billion Traveler's checks $4.7 billion Gold coins $1.4 billion Calculate the values of M1 and M2

M1 = $2,321.4 billion M2= $10,126.2 billion

For the U.S. government, which of the given is NOT an example of discretionary spending? For the U.S. government, which of the given is NOT an example of mandatory spending? Which type of spending currently takes up a larger proportion of the U.S. federal budget?

Medicare education spending mandatory spending

the graph below shows a short-run aggregate supply curve. please move the endpoints to turn the graph into a long-run aggregate supply curve. then, answer the question that follows. Long-run aggregate supply has this characteristic because..

Move points until it is a vertical line -the ability of the economy to produce determines long-run output. this is independent of price.

Consider the data in the table. YearNominal GDPGDP deflatorReal GDP2009$102058?2010$125064?2011$145092? Rank the years from highest to lowest in terms of real GDP (gross domestic product)

Nominal / deflator 2010 2009 2011

Please answer the given four questions related to the market for loanable funds. What effect will an increase in interest rates have on the quantity of loanable funds supplied? Please answer the given four questions related to the market for loanable funds. What effect will an increase in interest rates have on the quantity of loanable funds supplied? Which of the terms acts as the "price" in the market for loanable funds? If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?

Quantity supplied will increase. Quantity demanded will increase. interest rate The business will not take out the loan.

Suppose that the U.S. concrete industry has developed an inexpensive way to make concrete both lighter and stronger. As a result, the full employment level of aggregate output has grown from level A to level B in the graph. Move the SRAS (short‑run aggregate supply), AD (aggregate demand), or LRAS (long‑run aggregate supply) curves to describe how this concrete technology innovation has affected the U.S. economy.

SRAS and LRAS move right

The figure below shows aggregate demand (AD), long run aggregate supply (LRAS) and short run aggregate supply (SRAS). Suppose that the euro appreciates with respect to the dollar and boosts the U.S. balance of trade. As a result, aggregate demand shifts right from AD1 to AD2. Move LRAS, SRAS and/or AD2 curves to describe how the economy will move towards a new long-run equilibrium if the government does not intervene.

SRAS moves left

The graph displays the aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS) curves. Please manipulate the graph to illustrate how stagflation, such as that which occurred in Canada in the 1970s, can occur.

SRAS moves left

The nation of Cantania regularly experiences changes in its national budget situation. In some years, Cantania operates with a budget deficit, while in other years it experiences a budget surplus. Please classify each of the possible consequences into the appropriate category of the budget circumstance most likely to cause them.

Surplus: The government of Cantania stops borrowing from foreign nations More funds are made available for private investment in physical capital Deficit: Interest rates in Cantania rise Cantanias government increases its demand for financial capital

How, if at all, did these events affect the long‑run aggregate supply (LRAS) curve? Each phrase should be placed under the appropriate heading.

Shifted the LRAS curve to the left - A tsunami destroying much of the existing stock of capital in Japan - the 1970's oil crisis - Significant and sustained increases in income tax rates Shifted the LRAS curve to the right - The internet revolution of the 1990's - James Watt's invention of the steam engine in 1775 Did not shift -a central bank increasing the amount of money in circulation

Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds.

Supply moves right

Collaboration with Congress during the Clinton administration allowed for an aggressive deficit‑cutting plan to pass. At the end of the 1990s, Congress eliminated the government deficit. Manipulate the graph to illustrate how the elimination of the deficit affects the loanable funds market. What does the model predict will happen to the quantity of private investment as a result of elimination of the government deficit? Private investment will

Supply moves right increase because the cost of borrowing decreases.

Suppose there is a decrease in the tax rate of interest income in the United States. Illustrate the impact of this cut on the interactive graph. Assume the budget is balanced and there is no inflation. All else equal, what is the effect of the tax‑rate cut on the real after‑tax interest rate, the real interest rate, and the quantity of loanable funds exchanged?

Supply shifts right The real after‑tax interest rate rises, the real interest rate falls, and the quantity exchanged rises.

Household behavior with respect to changes in income can be described by the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). These variables can be used to predict the eventual changes in equilibrium output after the change in income has occurred.

The greater the MPC, the larger the resulting change in output for a given change in expenditure.

In which of the hypothetical scenarios would austerity measures most likely be considered by a country's lawmakers?

The national debt increases significantly over a number of years.

Choose the answer that best defines the marginal propensity to save (MPS).

The share of each additional dollar of income earned that is devoted to saving rather than consumption

Classify each statement as either true or false.

True A negative rate of inflation implies that deflation has taken place. False While theoretically possible, deflation has never been observed in the United States. False Deflation means that the overall price level is increasing at a decreasing rate. True Deflation means that the overall price level is decreasing.

Consider the GDP deflator and real GDP, given in thousands of dollars, for the country of Economica. (gdp deflator * real GDP)/100 Year Real GDP GDP deflator year 1 $30,777 105 year 2 $20,587 103 year 3 $40,977 100 The base year, or base period, is year 3. For the given years, calculate the nominal GDP. Round your answers to the nearest dollar.

What is the nominal GDP for year 1? year 1: $ 32316 What is the nominal GDP for year 2? year 2: $ 21205 What is the nominal GDP for year 3? year 3: $ 40977

Suppose you are looking at two investment portfolios. Portfolio A has an expected annual return of 10%, and Portfolio B has an expected annual return of 5%. Which portfolio do you expected to be riskier?

a

Reducing tax rates is which type of fiscal policy? Which type of fiscal policy takes longer to affect the economy: demand‑side or supply‑side?

both demand‑side and supply‑side supply‑side

The graph depicts a hypothetical economy. Shift one or both curves to illustrate the effect of a technological advancement that decreases the time it takes to transform coal into electricity. What happens to the natural rate of unemployment?

both shift right It does not change.

For the two questions, please use the given Laffer curve. In the 1980s, Arthur Laffer proposed that the economy was operating around which point? Given the answer to first question, what discretionary fiscal policy tool did Arthur Laffer propose that the United States utilize to increase tax revenues?

c decrease income tax rates

Income and consumption changes for five people are shown in the table. Given this information, rank the marginal propensities to consume (MPC) for the five people from largest to smallest. income change/consumption change

colin dale arnold ernest basil

Identify how each of the scenarios affects short‑run aggregate supply. a. The U.S. government increases the minimum wage. b. Widespread adoption of the Internet by businesses increases productivity and efficiency. c. The government decreases the payroll tax paid by employers. d. The U.S. government decreases the personal income tax rate paid by households.

decrease increase increase no change

Which statement best summarizes the views of supply‑side advocates and skeptics? Supply‑side advocates

credit the Reagan‑era tax cuts with the growth in real GDP and tax revenues in 1992, but skeptics point out that the reduction in taxes at a time of deep recession had the biggest impact on aggregate demand, not aggregate supply.

If the government is required to balance the budget and the economy falls into a recession, which of the actions is a feasible policy response? What is a likely consequence of this policy?

cut spending equal to the reduction in tax revenue The negative consequences of the recession are magnified.

Identify how each of the scenarios affects the short‑run aggregate supply curve. The Canadian government increases minimum wage. SRAS will ​Widespread adoption of the Internet by businesses increases productivity and efficiency. SRAS will The government decreases the payroll tax paid by​ employers. SRAS will A financial crisis causes businesses to anticipate a recessionary economy within the coming months. SRAS will The Canadian government decreases the personal income tax rate paid by households. SRAS will

decrease increase increase decrease not change

Businesses in some parts of Canada are eligible for The Atlantic Investment Tax Credit, a 10% tax credit. The Canadian government has decided to decrease this credit from 10% to 5%. The graph below is the hypothetical loanable funds market in Canada prior to the cut. a. Use the interactive graph to illustrate the impact this decrease in the tax credit will have, holding all else constant. b. Select the answer that describes the adjustment process in this market.

demand shifts left Firms find more investments are unprofitable and decrease their demand. As a result, the interest rate falls.

Individuals who want to work, but have given up searching for a job because of limited prospects, are known as This group, consisting of individuals who would like to work but have not looked for work during the past four weeks, is included among Individuals who are involuntarily working part‑time are considered By excluding the groups identified in the previous questions, the U.S. Bureau of Labor Statistics calculation methods

discouraged workers. marginally attached workers. underemployed. understate the true level of unemployment.

If the price level in the United States increases relative to other countries, then the United States will export and the United States will import Therefore, the net effect of an increase in the price level in the United States is that the amount of U.S. goods and services that are purchased will

fewer goods and services more goods and services. decrease.

Suppose that the administration in charge of the government proposes increasing spending on infrastructure. Assume that everything else stays the same. The components of aggregate demand (AD) are consumption (C), investment (I), government purchases (G), and net exports (NX). Which component of AD is primarily affected? What likely happens to the AD curve? What likely happens to the level of unemployment?

government purchases (G) AD shifts to the right (it increases). unemployment decreases

A jobless recovery means that

gross domestic product (GDP) increases while there is no increase in employment.

The table gives disposable income (DI), consumption (C), and savings (S) data for the country of Cornucopia. Use the given numerical values to complete the table.

https://docs.google.com/document/d/1QrwBpzPZ8CtJIc20NYEYrJD3BiSBi4BQitOEUDxLGWY/edit?usp=sharing

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. a. An improvement in adult literacy b. An increase in the college student population c. The development of smaller mp3 players d. The acquisition of computers by companies e. New distribution techniques

human capital human capital technology physical capital technology

Which term refers to a nation's transportation and communications networks, power generating facilities, educational institutions, and legal, economic, and financial systems? Which statement is not true?

infrastructure Countries with relatively large public sector shares in the economy have the highest growth rates in GDP per capita.

Label each description with the appropriate term. Any label can be used more than once, but each description requires only one term. The reward a saver expects on loaned funds: The cost a borrower pays for loaned funds: The difference between the real interest rate and the nominal interest rate: The percentage of disposable income that is kept as personal savings: The term that indicates why most people need to be incentivized to save: The result of consumption exceeding income over a particular period: i

interest rate interest rate inflation rate savings rate time preferences dissaving

The interest rate effect

is the change in consumer and investment spending due to changes in interest rates resulting from changes in the aggregate price level.

Which best describes technological knowledge?

knowledge used to produce goods and services

Philotechnia requires every high school graduate to be computer literate because so many workplaces are using different forms of information technologies. How is the aggregate demand-aggregate supply model affected? Demonstrate the effect by shifting the appropriate curve or curves.

long run and short run both move left

Suppose an economy is operating at point A on the graph showing aggregate demand. A decrease in the aggregate price level causes the economy to move to point B. On the graph showing aggregate expenditures (AE), show the change caused by the movement from point A to point B on the aggregate demand curve

moves up

The United States Bureau of Labor Statistics (BLS) categorizes individuals in the United States into three broad groups based on their employment status. Categorize each individual as employed, unemployed, or not in the labor force according to BLS standards. a. Brian is a 31‑year‑old who would like a job, is available to work, and most recently sought work six weeks ago. b. Sarah is a 78‑year‑old retiree who has no intention of returning to work. c. Bruce is a 59‑year‑old who has been without a job for two years, is available for work, and most recently sought work last week. d. James is a 35‑year‑old who most recently sought work two years ago. e. Chung is a 27‑year‑old single parent working only 10 hours a week, but seeking more hours.

not in the labor force not in the labor force unemployed not in the labor force employed

Inflation is often measured by evaluating changes in the cost of a fixed basket of goods and services. This method_______ inflation because it does not account for changes in spending patterns that result from relative price changes. This problem in known as ____. Another problem with this technique is that it fails to recognize changes in the caliber of goods over time. As an example, consider cable television service. Though the cost has remained relatively constant over time, the development of high-definition programing and more channels imply a substantial difference in caliber. This problem is known as _____.

overestimates substitution bias quality/new goods bias

Economic growth is most accurately measured by changes in which variable? For living standards to rise, what must occur?

real GDP Output must grow faster than the population

If an economy experiences deflation, then

the aggregate price level is declining.

Label each of the examples of fiscal policy lags. In December 2008, the Business Cycle Dating Committee of the National Bureau of Economic Research determined that the U.S. economy had been in recession since the fourth quarter of 2007 (when economic activity peaked).President George W. Bush released his tax relief agenda in February 2001. Following the debate in Congress, the Economic Growth and Tax Relief Reconciliation Act was signed into law in June 2001.In September 1959, President Dwight D. Eisenhower signed the Federal Employees Health Benefits Act, which established a voluntary health insurance plan for approximately two million employees and their dependents, with costs to be shared by the Federal Government and the employees. The act became effective in July 1960.

recognition lag implementation impact lag

An economy can increase its capital stock by Because of diminishing returns, an increase in the savings rate

reducing consumption spending. will have a proportionally smaller impact on productivity in well‑developed economies than in poor economies with very little capital to start with.

Determine whether the aggregate demand (AD) curve shifts in each of the scenarios. If the curve does shift, adjust the graph to reflect the change.

right left left right

The public choice perspective on deficit spending suggests that deficit spending

shifts the costs of programs away from current taxpayers and onto future generations.

Throughout history, all sorts of interesting things have been used as money, including fresh fish and cattle. Fresh fish is not an effective form of money. What essential characteristic of money does fresh fish lack that most makes it ineffective? Cattle is not an effective form of money. What essential characteristic of money does cattle lack that most makes it ineffective?

store of value medium of exchange

The source of the _______ for loanable funds is saving. The source of the _______ for loanable funds is investment. The _______ represents the price of a loan.

supply demand interest rate

Classify each statement as either true or false. New technological developments can help us adapt to depleting sources of natural resources. Research and development funds from the government to private industry never pay off for the country as a whole; they only increase the profits of rich corporations. In order for fledgling industries in poor nations to thrive, they must receive protection from foreign trade. Countries with few natural resources will always be poor. As long as real GDP (gross domestic product) grows at a slower rate than the population, per capita real GDP increases.

t f f f f

Which of the factors would decrease the rate of frictional unemployment? When the economy is doing well, a significant share of unemployment is frictional.

the advent of the Internet, which makes finding available jobs easier true

Consider the interaction between labor and capital within the production process and answer the following questions. How do economists refer to the amount of capital employed per worker? What would likely happen if the amount of capital employed per worker grew?

the capital‑labor ratio Wages would rise because workers would become more productive.

The cyclically adjusted budget balance is the budget balance after accounting forthe difference between GDP and potential GDP.

the difference between GDP and potential GDP.

Liquidity is best defined as Identify which asset is the most liquid.

the ease of converting an asset into cash. checking account

Which factor brings the supply and demand of loanable funds into balance?

the real interest rate

Consider the effects of an increase in two different types of income: permanent income and transitory income. In general, an increase in income will result in a lower corresponding increase in consumption. Changes in this type of income will have a comparatively multiplier effect. If the government wants to maximize the impact of a tax decrease on consumer spending, it should

transitory smaller pass a permanent tax cut.

In the economy of Spendsalot, the marginal propensity to save, MPS, is 0.7. What is the marginal propensity to consume, MPC, for Spendsalot?

0.3 the slope of pre‑tax consumption as a function of GDP

Each of the following scenarios considers a change in the aggregate price level. Please indicate whether the scenario demonstrates the wealth effect (aka the real-balances effect) or the interest-rate effect. 1. After an increase in the aggregate price level, Jasper realizes that the $300 in his checking account can now only buy as many lattes as $200 would have bought a year ago. As a result, he decides to purchase fewer lattes. 2. Abe notices an increase in the aggregate price of goods during the three years he has been charting his costs. Due to the increase, he decides to use less of his money to finance investment spending for his business. 3. Micah decides to increase savings in order to finance the remodeling of his home rather than seek a loan. 4. Ivan notices a decrease in the aggregate price level of 10%, so he decides to spend more of his $3,500 in savings than he had originally planned to spend.

1. Wealth effect 2. Interest rate effect 3. interest rate effect 4. Wealth effect

Please complete the passage about the history of the U.S. public debt as a percentage of GDP. The public debt surpassed GDP during the then fell steadily, reaching its lowest point in the From that decade on, the public debt as a percentage of GDP has increased consistently, except for a decline in the late . By 2010, the debt had risen to of GDP.

1940s 1970s . 1990s 60%

The table describes hypothetical employment statistics for a country in a given year. Labor forceFull-time workers andvoluntary part-time workersInvoluntary part-time workersDiscouraged workers160160 million148148 million66 million44 million Based on the information, what is the unemployment rate? Enter your answer as percentage rounded to one decimal place.

3.8

The table describes hypothetical employment statistics for a country in a given year. Labor forceFull-time workers andvoluntary part-time workersInvoluntary part-time workersDiscouraged workers160160 million148148 million66 million44 million Based on the information, what is the unemployment rate? Enter your answer as percentage rounded to one decimal place.

3.8 Unemployed= Labor Force− Employed Unemployed= Labor Force− Employed Unemployment rate=Unemployed/Labor Force× 100=Labor Force− Employed/Labor Force×100= 160 million−154 million/160 million× 100 =3.8%

After the financial crisis that hits the country of Barbaria in 2012, a total of 33 million people are unemployed. If 65 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.

4.41 Unemployed/unemployed+ employed

The Thompson family has a disposable income of $90,000 annually. Currently, the Thompson family spends 80% of new disposable income on consumption. Assume that their marginal propensity to consume is 0.8 and that their autonomous consumption spending is equal to $10,000. What is the amount of the Thompson family's annual consumer spending?

82000

Use the Rule of 70 to answer the questions on economic growth. Round answers to two places after the decimal .A. If annual real GDP per capita growth in South Africa averages 1.8% , how long will it take the country to double its real GDP per capita? B. If Ireland took 15 years to double its real GDP per capita, what was its average annual GDP per capita growth rate during this period? C. If annual real GDP per capita growth in Tanzania averages 0.8% per year, how long will it take the country to quadruple its real GDP per capita? D. If China took 40 years to increase its real GDP per capita eightfold, what was its average economic growth during this period?

A. 70 / 1.8 = 38.88 years B. 70 / 15 = 4.66% C. 140 / 0.8 = 175 years(140 because 70 * 2) D. 70 / 40 = 1.751.75 * 3 = 5.25%(2 ^ 3 = 8 meaning eightfold)

Adjust the graph to demonstrate the primary impact a supply‑side economist would predict if the government lowered the marginal tax rate.

AS moves right

The people described are out of work. Determine the appropriate classification for each person.

After several months of searching for a job, LaDainian has decided to stop looking. He instead spends his time golfing and spending time with his family. LaDainian is not in the labor force. Terrell does not have a job. For many years, Terrell's skills were highly desired and he had no trouble finding work. Terrell still has many of these same skills but he is finding that employers now desire different attributes in employees. Terrell is structurally unemployed. Abby is a stellar employee. However, her employer has gone out of business due to a recession and Abby has no job as a result. Abby will surely be able to find a job in the future but remains looking for a job currently. Abby is cyclically unemployed. Deron does not currently have a job. Many firms would like to hire him, in Dallas and Brooklyn in particular, but Deron remains out of work as he evaluates potential jobs in search for a proper match. Deron is frictionally unemployed.

Why are persistent budget deficits worrisome?

All of the above.

Which of the statements concerning retirement accounts is true?

Contributions to personal retirement accounts remain the property of the individual or heirs, but Social Security payments are transferred to others.

Which of the following are examples of the investment component of GDP?

Is: -Floatin' Away Kayak Co. buys equipment to use its factory -Underfoot Sneaker CO. stores shoes that are produced in the current time period but not sold in inventory. Is not :-Miranda buys a computer for personal use -The government purchases new military equipment -All the Econs Consulting charges a foreign client $50,000 for services it has already provided.

Why is the effectiveness and stability of a country's financial system essential to economic growth?

It allows firms to finance technological advancements, which lead to economic growth.

How do mutual funds reduce risk for the average individual investor?

Mutual funds reduce risk through portfolio diversification.

During a recession, economists traditionally focus on monetary and fiscal policies to bolster the economy. a. Use the aggregate demand - aggregate supply (AD-AS) model in Panel A to show the effect of a tax cut, in the form of a tax rebate, given to each taxpayer. If inflation is high during a recession, some economists advocate cuts on marginal tax rates, to help avoid additional inflation. b. Use the AD-AS model in Panel B to show the effect of marginal tax rate cuts.

Panel A AD moves right Panel B SRAS moves right c. Panel A is an example of expansionary fiscal policy and Panel B is an example of supply-side policy.

In 2000, a small nation has real GDP of $20,000 and a population of 150. By 2010, real GDP has grown to $30,000, and improved nutrition has allowed the population to increase to 220. Which statement must be true for this nation? As the nation's leading expert in economics, you have been asked to present a series of economic policies you believe would be helpful to the nation. Because of budget constraints, the legislature also wants you to rank your suggestions. Which suggestion would be last on your list of policy proposals?

Per capita GDP is higher in 2010 than it was in 2000. strict population control measures

In the economy depicted in the graph, what happens if there is no intervention from policy makers? Use the graph, where LRAS represents long‑run aggregate supply, SRAS represents short‑run aggregate supply, and AD represents aggregate demand, to demonstrate the answers by shifting the appropriate curve or curves.

SRAS moves right increase decrease

Three countries are attempting to increase their real GDP by increasing government spending. The bottom row of the corresponding table shows the amount by which each country plans to increase government spending. Use this table to answer the questions. What variable in the table can be used to determine the mulitiplier? In which country is the multiplier the highest? In which country will real GDP increase the most as a result of increased government spending?

The MPS A B

After reading the given descriptions, please place the correct label by the quadrant on the graph that best describes each person's position in the market for loanable funds. Jolien decides not to take out a loan to fund expanding her grocery store because she projects it will only earn a return of 4%. Osi closely follows the market for United States Treasury Bonds. He is willing to invest in them anytime the rate of return is 5% or higher, and sees that this is the case. In order to open a new car wash facility expected to return 13%, Julius secures a loan. John will shift his stock investments to corporate bonds when they return at least 10%. They do not, so he stays with stocks

Top left to right Julius-john Bottom left to right osi - jolien

Determine whether the following statements are true or false. An increase in government spending can crowd out private investment. A decrease in the budget deficit can crowd out consumer spending. Higher interest rates can lead to consumer spending being crowded out. Lower interest rates can lead to private investment being crowded out. Crowding out is most likely to occur when the economy is in a

True False True False False

Suppose the civilian noninstitutionalized working-age population is 35.935.9 million in in a hypothetical economy. Of these, 4.64.6 million are working part-time and 15.7115.71 million are working full-time. Assume the Bureau of Labor Statistics (BLS) definitions are used for calculating unemployment data. Among those not working, the most recent job-search activity for 3.203.20 million happened less than two weeks ago, while 1.721.72 million most recently looked for work between two and four weeks ago. An additional 0.860.86 million most recently looked for work five weeks ago, and the remaining 9.819.81 million who do not have jobs have not looked for work in the past six weeks. Round your answers to two decimal places.

What is the size of the total labor force? 25.23 How many people are unemployed? 4.92 What is the labor force participation rate? 70.28 What is the unemployment rate? 19.50

M1 and M2 are two definitions of the money supply. Determine whether the items listed are included in the money supply under each of these definitions.

a. Common stock is part of neither M1 or M2. b. Money market account balances are part of M2 only. c. Balances in savings accounts are part of M2 only. d. Balances on checking accounts are part of both M1 and M2. e. Certificates of deposit are part of M2 only. f. Currency is part of both M1 and M2. g. Credit cards are part of neither M1 or M2. h. Gold is part of neither M1 or M2.

Flll in the blanks to complete the following passages describing the three sources of inflation.

a. Cost-push inflation arises when higher input prices compel sellers to raise product prices. For example, it may occur when an unforeseen event limits the availability of a resource commonly used in production. b. Demand-pull inflation arises when increased consumer purchases incentivize sellers to raise prices. For example, it may occur when consumer purchases outpace existing product supply, pushing output beyond potential . c. Inflation expectations may act as a self-fulfilling prophecy when people become accustomed to a given inflation rate and people predict the future based on the past.

Complete the following statements.

a. Dan saves a portion of his income in an interest-earning account. In the loanable funds market, Dan is a supplier of loanable funds. b. John owns a pizzeria and needs to borrow money for a new oven. In the loanable funds market, John is a demander of loanable funds. c. Savers like Dan are likely to save more when the real interest rate increases. Therefore, the supply curve for loanable funds slopes upwards. d. Borrowers like John are likely to borrow more when the real interest rate decreases. Therefore, the demand curve for loanable funds slopes downwards.

Identify the impact on either the supply or demand of loanable funds following the events listed below

a. If economic conditions deteriorate, prompting households to save a larger portion of their income, then supply of loanable funds will increase. b. In an effort to balance the budget, the government increases taxes paid by businesses. As a result, the demand for loanable funds will decrease. c. If economic conditions improve, increasing the demand for goods and services, then the demand for loanable funds will increase. d. Innovations in robotics technology vastly improves productivity within manufacturing firms. As a result, the demand for loanable funds will increase.

Complete the sentences on the role of government in promoting economic growth.

a. The government's direct role in the production of physical capital is primarily focused on developing infrastructure . b. The government's direct role in creating human capital is primarily focused on improving the education system . c. Governments play an indirect role in private savings and investment through regulating the financial system .

What is inflation? Which of the examples provides the best evidence that inflation has occurred?

an increase in the overall price level A person whose salary has increased is able to purchase fewer goods and services.

Suppose a decades‑long civil war stifles a nation's technology and capital stock, and concurrent monetary policy causes deflation of 7% per year. Assume that no other changes take place. Use the aggregate supply‑aggregate demand graph to show how the economy would arrive at its new long‑run equilibrium.

all lines move left

Productivity can increase with improved resource allocation. Which of the options is not a source of improved resource allocation?

an increase in protectionist policies, such as tariffs on imported goods

Which example is not a factor that contributes to growth in labour productivity?

an increase in the labour force participation rate

To convert the money spent on the basket to a useable figure, economists arbitrarily choose the , or starting point from which we measure changes in prices. To simplify the task of interpreting the price levels for more realistic and complex baskets of goods, economists typically report the price level in each period as an , rather than as the dollar amount for buying the basket of goods.

base year index number

Match the definition with the correct type of unemployment. Not all of the terms will be used. Unemployment caused by recessions Unemployment that normally occurs due to turnover as workers switch jobs The unemployment rate that exists when the economy is operating at potential

cyclical unemployment frictional unemployment natural unemployment rate

Select the best term to describe different approaches to federal finance. a. Policymakers should reduce spending and increase taxes when the economy is growing in order to prevent "overheating." b. This approach was considered conventional wisdom until the advent of the Great Depression. c. Policymakers should focus on keeping unemployment low and providing the people with the public goods and services they want. d. If insisted upon, this approach would only worsen the economy during a recession. e. This approach ignores the impact of the budget on the business cycle.

cyclically balanced budget annually balanced budget functional finance annually balanced budget functional finance

Deficit spending is most associated with Opponents of deficit spending argue that a portion of the desired economic effect will be What does crowding out describe?

expansionary fiscal policy. crowded out due to higher interest rates. Increased government spending causing consumption and investment to decline.

As the marginal propensity to consume (MPC) increases, the spending multiplier If the marginal propensity to consume is 0.40, then, assuming there are no taxes or imports, what is the multiplier? Round to the nearest tenth. Given the calculated multiplier, what is the total impact on spending when there is a $1,000 increase in government spending?

increases 1.7 1700

Match each scenario to the appropriate inflation term. a. Over the past few months, Izzy Seltzer has noticed an overall increase in what he pays for the goods and services that he uses almost daily. b. For the past month, Dee Major has noticed that she has more money left over after her weekly shopping even though she is buying the exact same items. c. Bob Dwyer has seen a pattern emerge over the past few days. Each day, the prices of many goods are literally doubling overnight, to his great surprise. d. In general, prices have an upward trend. e. For the most part, the price level is gradually decreasing.

inflation deflation hyperinflation inflation deflation deflation

Worker productivity is one of the most important factors that help determine the performance of an economy. Which definition best describes productivity?

production per hour worked

Anna Prentice has worked for years fixing broken typewriters. She is laid off from her as fewer people use typewriters. She is looking for work but cannot find a job in her area of specialty Which term describes Anna's type of unemployment Beau Tye decides to quit his job as a waiter in Pensacola, Florida, in order to pursue his dream of becoming an actor in Hollywood. Acting jobs exist, but he has yet found one. Which term describes Beau's type of unemployment Brock Lee used to work at Much n' Munchies Restaurant serving fun family fare. Business at Munch n' Munchies has been slow because the major employer in town has laid off a large number of people. There are simply was not enough work to keep Brock Lee on the payroll at Munch n' Munchies Which term describes Brock's type of unemployment?

structural unemployment frictional unemployment cyclical unemployment

Match the cause for the negatively sloped aggregate demand curve with the correct term. a. As prices rise, the cost for businesses to finance new equipment increases, causing a drop in quantity demanded of real GDP b. The purchasing power of money held in savings accounts falls as prices rise. c. As prices rise in the United States, foreigners purchase fewer U.S. goods.

the interest rate effect the wealth effect the export effect

Please decide whether each of the scenarios related to the loanable funds market will result in a shift in supply or a shift in demand. China decides to reduce its capital investment in the United States, as it expects low returns due to a weak U.S. economy. Calopolis, a college town in Northern California, has for many years banned the presence of fast food restaurants in city limits. As of 2012, however, the city will allow several fast food companies to open franchised locations. Due to an increase in revenues after a tax hike, the United States is able to eliminate the deficit and begins to maintain a balanced budget for the first time in several decades. As a result of a stock market boom, individuals begin to feel richer and spend more while also saving less.

~ Shift in Supply ~ Shift in Demand ~ Shift in Demand ~ Shift in Supply

What is the eventual effect on real GDP if the government increases its purchases of goods and services by $80,000? Assume the marginal propensity to consume (MPC) is 0.75. What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $80,000? Assume the MPC has not changed. An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in

320000 240000 a smaller eventual effect on real GDP.

The average rate of growth for slow-growth countries is around 2% per year, and for fast-growth, greater than 5% per year. Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every If instead the growth rate is 7%, the doubling time for the economy is Economic growth is important to understand because

35 years 10 years it is closely tied to standard of living.

Suppose that the GDP of California increases by 11% each year. How long will it take for the GDP of California to double? Round your answer to one digit after the decimal. duration for California's GDP to double: Suppose that the GDP of Oregon today is exactly twice what it was 22 years ago. What was the average annual growth for Oregon over this time period? Round your answer to one digit after the decimal. average annual growth for Oregon:

6.4 years 3.1 each year

Please label each of the hypothetical individuals with the term that best describes him or her. Each term is used once.

:Lilly is a recent college graduate that has started her first job as a business analyst. EMPLOYED 2: Mason, a machinist in a coal mine, had a freak accident loading coal, which left him severely disabled. He has since been released from his employment with a severance package for life, but he would like to continue to work. Months pass and he gets no offers, despite his stellar resume. Mason gave up on the job hunt four week ago. DISCOURAGED WORKER 3: Olivia has a PhD in economics, but due to the severe recession, has a hard time finding a job. She takes a part-time job as a consultant, but would prefer a full-time gig do that she can have insurance benefits. UNDEREMPLOYED 4: Chloe, age 17, is a full-time student and has no interest in working. NONE OF THESE TERMS APPLY 5: Fred, a computer programmer, recently quit his job at Vurve due to the onset of carpal tunnel syndrome and is now trying to find a new job that will not hurt his wrists as much. He is confident, as many startups are hiring. UNEMPLOYED

Suppose that the policy-makers of a foreign country decide to enact policy that reduces unemployment (at the expense of higher prices) just before an election. At the time of the election, however, the reduction in unemployment is much greater than expected, and the pesky inflation increase never occurs. The graph illustrates the economy before the government attempts to reduce unemployment. Change the graph to illustrate changes in the economy that could result in lower unemployment without an increase in prices. Note that LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand.

AD and SRAS move right

Suppose legislatures announce a tax cut. Please shift the appropriate curve or curves to illustrate the result of this policy.

AD moves right

Suppose that the government engages in expansionary fiscal policy by increasing government spending. Show the initial impact by properly shifting the aggregate demand curve (AD), the short‑run aggregate supply curve (SRAS), or the long‑run aggregate supply curve on the graph below.

AD moves right

Select the term that best describes the employment status of people in the scenarios

Anna Conda is currently on a hiking vacation in the Amazon jungle from her part‑time job as a herpetologist at the San Diego Zoo. employed Bill Loney does not have a job nor does he intend to look for one. out of the labor force Brighton Early is a student. He has no job outside of the home but spends five hours each week mowing the lawn and maintaining his yard. He is happy with his situation and is not looking for more work. out of the labor force Bonnie Ann Clyde has not had any work at all for six months despite the fact that she has been filling out at least eight job applications each day. unemployed

Which describes the role of automatic stabilizers in the economy?

Automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. Automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions.

The graph shows aggregate expenditures using the withdrawals and injections approach. Move each category of transactions to the line which includes that category.

Diagonal line: savings taxes Horizontal line: government purchases investment net exports

Donny, of Donny's Doughnuts, bakes and sells 100 dozen doughnuts a day using one mixer and one fryer. His rival, Sunshine, of Sunshine's Doughnuts, produces 180 dozen doughnuts a day using two mixers and two fryers. Both shops use the exact same technology to make doughnuts and have the same number of workers and the same size building. Donny and Sunshine both increase their capital equipment by one mixer and one fryer. Which shop will benefit the most from its expansion? How much should Donny realistically expect his production to increase with the new equipment? How much should Sunshine realistically expect her production to increase with the new equipment?

Donny, because his workers currently have less available capital to work with. about 80 dozen about 50 dozen

Use the graphs to illustrate the effect of a decrease in consumer income expectations on the consumption (C) function and the savings (S) function. Choose the answer that best explains the relationship between the consumption function and the savings function.

Graph on left shifts down Graph on right shifts up When the consumption function shifts, the savings function shifts in the opposite direction.

Why is increased technological knowledge for a nation important for growth?

It allows the nation to be more productive in goods and services that it produces.

The graphs illustrate an initial equilibrium for the economy. Suppose that the government cuts taxes. Use the graphs to show the new positions of aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS) in both the short run and the long run, as well as the short‑run and long‑run equilibriums resulting from this change. Then, indicate what happens to the price level and real GDP (or aggregate output) in the short run and in the long run.

Left graph AD moves right Right Graph AD moves right SRAS moves left In the short-run, the price level increases and GDP increases. In the long-run, the price level increases and GDP stays the same.

Illustrate the impact of a $500 million increase in government spending by adjusting the graph. In the full Keynesian model, the marginal propensity to save (MPS) is 0.25. What is the resulting change in output? If the government cut taxes by $500 million instead, what would be the resulting change in output?

Line moves up Output increases by $2,000 million, or $2 billion. Output increases by $⁢375 million×4 , or $1.5 billion.

Which of the statements clearly demonstrates that total factor productivity is increasing? Assume the aggregate production function is upward sloping and exhibits diminishing returns.

Physical capital per worker and human capital per worker decrease, but real GDP per worker remains unchanged.

Suppose Kittyville's full‑employment GDP is $600 billion, and the current equilibrium GDP is $400 billion. The MPC in this economy equals 0.90. Kittyville's economy has a recessionary expenditure gap. To correct this gap, Kittyville hires an economist, Kittyzen Keynes, who suggests increasing government spending or decreasing taxes. Suppose Kittyville decides to change government spending under Keynes' advice. By how much must government spending change to correct for the expenditure gap (rounded to nearest billion dollars)? Suppose Kittyville instead decides to change taxes under Keynes' advice. By how much must taxes change to correct for the expenditure gap (rounded to nearest billion dollars)?

Recessionary increasing decreasing 20 22

Suppose that because of globally adverse meteorological conditions, there are serious concerns of climbing prices in an extensive group of commodities. As a result, people now expect an acute increase in the level of input prices. The figure shows aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS). Move one or more of these curves to describe the short‑run effect this would have in the economy and answer the two questions. In the short run, price level In the short run, real GDP (or aggregate output)

SRAS moves left increases. decreases.

The aggregate demand and aggregate supply (AD‑AS) model shown depicts a hypothetical situation where a recent increase in expected income increases AD. The current AD (post adjustment) is depicted by curve AD1. Please show what will happen to this economy next (ceteris paribus). Adjust only one of the curves in one direction. The original AD curve cannot be shifted.

SRAS moves right

Government debt in the United States can be categorized a number of different ways. For each debt definition, please indicate all of the scenarios which match that type of debt.

The national debt includes Treasury bonds bought by the government of China. a citizen of Germany. the Social Security Administration. a little old lady in Peoria. First National Bank of Dallas. The public debt includes Treasury bonds bought by First National Bank of Dallas. the government of China. a citizen of Germany. a little old lady in Peoria. Internally held debt includes bonds owned by First National Bank of Dallas. a little old lady in Peoria. Externally held debt includes bonds owned by the government of China. a citizen of Germany.

Which is true if a nation is currently experiencing full employment?

The rate of cyclical unemployment is 0%

Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister?

The recessionary gap is equal to 400 billion yen

Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which proposal would have the best chance of success? Which source of productivity growth does the best proposal directly influence?

To increase the general level of skills in the labor force, develop higher levels of quantitative skills through free classes at community colleges. human capital

After graduating from college in 2010, Art Major's starting salary is $ 35757.00 . Suppose Art Major has a cost of living adjustment (COLA) clause, or an escalator clause, in his labor contract so that he will be able to maintain this same level of purchasing power in real terms in 2011 and 2012. Using the information in the table, how much will Art Major earn in 2011 and 2012 if his salary keeps up with inflation? Round your answers to the nearest dollar. $50757.00/102.77·104.29=$51508 Year CPI 2010 101.77 2011 104.29 2012 107.06

What is Art Major's salary in 2011? $36642 What is Art Major's salary in 2012? $37616

Which best describes why the multiplier exists?

When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way.

Identify whether each macroeconomic variable is an example of a withdrawal or an injection. Then, determine the value of investment at equilibrium. All values are in billions of dollars.

Withdrawal: saving=$640 Imports=$2240 taxes=$2400 Injection: Government spending=$3200 exports=$1760 investment=? investment at equilibrium: $320

Identify each scenario as an example of expansionary fiscal policy, contractionary fiscal policy, or not an example of fiscal policy.

a. An increase in the money supply is not an example of fiscal policy. b. A decrease in taxes is an expansionary fiscal policy. c. A decrease in the unemployment rate is not an example of fiscal policy. d. An increase in tax rates is a contractionary fiscal policy. e. A decrease in government spending is a contractionary fiscal policy. f. A decrease in the money supply is not an example of fiscal policy. g. A decrease in transfer payments is a contractionary fiscal policy. h. An increase in corporate bonds purchased is not an example of fiscal policy. i. An increase in government spending is an expansionary fiscal policy.

Classify the actions as either discretionary spending or an automatic stabilizer.

a. Economic growth increases personal and corporate income, increasing tax payments. Automatic stabilizer b. A bill is passed to increase unemployment benefit payments. Discretionary spending c. Government spending on welfare increases due to an increase in applicants. Automatic stabilizer d. Congress votes to cut government spending in order to balance the budget. Discretionary spending e. A law is enacted that increases Medicare coverage. Discretionary spending f. The government cuts taxes to stimulate consumer spending. Discretionary spending g. The government increases tax rates to prevent inflation. Discretionary spending h. Tax revenue falls as a result of a recession reducing personal income and corporate profits. Automatic stabilizer i. An increased number of layoffs increases government spending on unemployment benefits. Automatic stabilizer

Choose the appropriate term to fill in the blank for each statement. Each term is used only once.

a. Keynesian economists believe that income is the key determinant of consumption and spending. b. Classical economists believe that the higher the interest rate, the more people will save, which means that they will consume less. c. A person's expectations regarding how much income he or she will earn in the future as well as future prices could shape how much he or she spends and saves today. d. The more household debt a person has, the less current consumption he or she undertakes. e. A person's total income can be divided into three components: consumption, savings, and taxes. f. Savings, which is total income minus consumption and taxes, can be used to create wealth.

Categorize the statements according to whether they promote economic growth or inhibit economic growth.

a. Laws against theft promote economic growth. b. Income tax rates of 90% inhibit economic growth. c. A price control imposed on milk inhibits economic growth. d. The enforcement of trademarks promotes economic growth. e. A culture of bribery inhibits economic growth. f. A commitment by a nation's central bank to print money to pay for government expenditures inhibits economic growth. g. The use of competitive markets to allocate goods and services promotes economic growth.

Complete each statement by selecting the appropriate type of fiscal policy.

a. Lowering inflation and increasing unemployment is a goal of contractionary fiscal policy. b. Lowering unemployment and prices is a goal of supply-side fiscal policy. c. Lowering unemployment and increasing inflation is a goal of expansionary fiscal policy. d. Supply-side fiscal policy focuses on reducing regulations on businesses. e. Expansionary fiscal policy involves more government spending money on anything. f. Supply-side fiscal policy encourages human and capital development.

The consumer price index (CPI) can be used to measure inflation. There are potential problems with this process though that can result in inflation being overstated or understated. Place each statement according to whether it would cause inflation to be overstated, understated, or would give an accurate representation of inflation.

a. Pat, a confirmed chocoholic, notices that a favorite candy bar shrank in size, but its price stayed the same. Causes inflation to be understated b. Sam loves bagels, but bagels are becoming more expensive. Sam replaces bagels with muffins in the breakfast routine because muffins remain relatively cheap. Causes inflation to be overstated c. Mary and Bob replace their old minivan with a new one. The new van costs 15% more than the old van, but the new model has many updated features like a camera to assist with backing up, GPS, and better fuel economy. Causes inflation to be overstated d. Chris is an avid runner, loyal to one particular brand of running shoe. She buys a new pair of the same shoe every few months. The price of the shoes has doubled in the last 15 years. Does not cause inflation to be overstated or understated

Select the term that matches each definition.

a. when the government receives more in taxes than it spends in a given time period budget surplus b. when government spending and taxes are equal balanced budget c. when the federal government spends more than it collects in taxes in a given time period budget deficit d. the total accumulated amount that the government has borrowed and not yet paid back over time government debt

Consider the different characteristics of the aggregate demand curve and the short‑run aggregate supply curve. For each statement below, determine which curve is being described. a. Desired purchases of goods and services at different price levels b. Shifts when productivity changes c. Shifts when consumer wealth changes d. Upward‑sloping e. Real GDP that firms produce at various price levels f. Shifts when the cost of oil changes significantly g. Downward‑sloping

aggregate demand short-run aggregate supply aggregate demand short-run aggregate supply short-run aggregate supply short-run aggregate supply aggregate demand

The multiplier effect occurs when an initial increase (or decrease) in autonomous expenditure produces a greater increase (or decrease) in real GDP than the initial change. In which type of discretionary fiscal policy does the multiplier play a role? Assume a marginal propensity to consume (MPC) of 0.5. Which discretionary fiscal policy would have a more pronounced impact on the economy?

both government spending changes and tax changes A 700 billion dollar increase in government spending would have a more pronounced impact on the economy.

Consider each event described below will increase investment demand, decrease investment demand, or leave investment demand unchanged. a. Congress increases business taxes to avoid the much discussed "fiscal cliff." Investment demand will b. The tech industry develops the personal computer, which has a significant impact on productivity. Investment demand will c. Businesses become increasingly pessimistic about the economy. Investment demand will d. After a major hurricane, the resulting floods destroy much of the existing capital stock in many parts of the eastern United States. Investment demand will e. The practice of fracking, which is a technique used to extract oil and natural gas, increases, causing the costs of using many types of machinery to fall. Investment demand will

decrease. increase decrease increase increase

Classify each example as either relating to human capital, physical capital, or technology. An increase in adult literacy affects An increase in the number of company cars impacts An increase in the number of college gradudates impacts New distribution techniques affect An increase in the number of company computers affects More people graduating from culinary school affects A new cancer treatment affects A doctor's knowledge about a new cancer treatment affects

human capital. physical capital. human capital. technology. physical capital. human capital. technology. human capital.

The graphs illustrate an initial equilibrium for some economy. Suppose that the economy experiences a rise in aggregate demand. Use the graphs to illustrate the new positions of AD, SRAS, and LRAS as well as the new short‑run and long‑run equilibria resulting from this change.

left graph: AD moves right Right graph: AD and SRAS move up

What happens in the simple Keynesian model if households expect lower income in the future and decide to save more today? Adjust the graph and answer the question. Assume that investment varies directly with aggregate income. What happened to output, income, and savings, as a result? What do economists call this phenomena?

line moves down The overall decrease in income, output, and savings, as a result of households' move to increase savings, is known as the paradox of thrift.

What is the catch‑up effect concerning developed and developing countries? Developing countries

may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth.

Adjust the graph to show the effect of a decrease in the aggregate price level. Which of the statements offers the best explanation for the change demonstrated in the graph?

move A down Prices of goods and services decrease on average.

Snowdonia is a small country which produces wrought iron and cheesecakes and is experiencing fixed capacity growth in year 1. Which part of the business cycle is Snowdonia in? Fixed capacity growth is demonstrated on the graph as a movement from point Long‑run growth in Snowdonia would be illustrated on the graph as a movement from point

recovery C to point A A to point B

Which provisions provide incentives for innovation?

research and development tax credit provisions copyright laws patent systems

Who reports the official U.S. unemployment rate? How frequently is the survey that determines unemployment released

the U.S. Bureau of Labor Statistics monthly

Classify the statements about investment spending as true or false.

a. Predictable levels of profit cause investment spending to be relatively volatile. false b. Investment spending rises and falls as the pattern of innovation changes. true c. The predictable lifespan of many capital goods explains why investment spending is so stable. false d. Investment spending is more volatile when firms have changing views about how promising the business climate appears. true e. Investment spending typically fluctuates less than consumption spending. false

Which of the statements is the best description of inflation?

An increase in the overall price level has occurred.

Complete the statements and then calculate the change in consumption. The consumption function shows the relationship between consumption spending and The slope of the consumption function is the Changes in consumption can be predicted by multiplying the change in If the MPC=0.80 and disposable income increases by $$1000, then consumption will increase by what amount? Assume that there is no multiplier effect.

disposable income marginal propensity to consume disposable income by the marginal propensity to consume $800

Place the fiscal policy timing lags in order from earliest to latest. Not all lags will be used.

information recognition decision implementation

Ruritania produces Widgets and Gizmos. If all of its factors of production are committed to making widgets exclusively, it can make 8 million units each year. If all of its factors are committed to making Gizmos exclusively, it can make 8 million units per year. Ruritania's Ministry of Growth has considered various plans to stimulate economic growth in the kingdom. Adjust the production possibilities frontier (PPF) on the graph to show the impact of a successful plan to enable more people to attend college.

move up

Lilliput is a country that has closed borders and does not import or export any goods or services; hence, they do not worry about trade with other countries. Total spending for the federal government of Lilliput for the last fiscal year was $1.06$⁢1.06 billion. The country collected $1.05$⁢1.05 billion in taxes during this same fiscal year. Assume government transfers were zero. Based on this information, what is Lilliput's budget balance? Enter your answer to two decimal places. In the last fiscal year, Lilliput was running

-0.01 A budget deficit

Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the marginal propensity to consume (MPC) is equal to 0.65 and taxes are cut by $9 billion . Round answers to the nearest billion, and specify decreases as a negative number. By how much will government spending change? change in government spending: $ What is the resulting change in the equilibrium level of real GDP? change in equilibrium level of real GDP:

-9 -9