MACRO EXAM 2

If an economy is growing at 10%, how long will it take for $1,000 to turn into $4,000? 7 years 14 years 21 years 28 years

14 years

Suppose the price of a fixed basket of goods is $500 in 2018 and $530 in 2022. If the price index in 2018 was 150, what is the price index in 2022 based on the fixed basket of goods? 106 156 159 180

159

Which of these would NOT shift the AD curve? The economy improves and people start spending more. Interest rates rise, which reduces investment spending. An increase in market power occurs in the airline industry. The federal budget is reduced to tackle the deficit problem.

An increase in market power occurs in the airline industry.

The expansion phase of the business cycle is represented by a rightward movement along the production possibility frontier. True False

FALSE

Which of these statements is correct? Households supply both labor and non-labor resources.In the circular flow model, incomes and resources flow in the same direction.The four main factors of production are water, land, entrepreneurial ability, and energy. Owners of factors of production pay income to firms.

Households supply both labor and non-labor resources.

Which of these statements about the natural rate of unemployment is correct? It is always less than the actual rate of unemployment because it does not include cyclical unemployment. It consists of the sum of frictional, structural, and cyclical unemployment. It is more volatile than the actual rate of unemployment. It is the unemployment rate at which inflation is equal to people's expectations.

It is the unemployment rate at which inflation is equal to people's expectations.

Keiko borrowed $20,000 from her bank at a fixed interest rate of 4% to purchase a new car. Suppose that the inflation rate unexpectedly rises. This change would benefit _____ because the purchasing power of the loan payments _____. Keiko; decreases Keiko, increases the bank; decreases the bank; increases

Keiko; decreases

Which U.S. government organization provides numerous grants to individual researchers and research organizations to pursue projects that contribute to the country's economic growth? U.S. Census Bureau National Aeronautics and Space Administration (NASA) Bureau of Economic Analysis (BEA) National Science Foundation (NSF)

National Science Foundation (NSF)

If the gross domestic product of Japan in the year 2023 is $3.8 trillion (measured in 2012 dollars), this value is Japan's: nominal GDP. real GDP. nominal GDP per capita. real GDP per capita.

Real GDP

An example of physical capital is a communications network used to track shipments. True False

TRUE

The Census Bureau surveys households for employment status, while the Labor Department focuses on the payrolls of businesses and government agencies to determine employment totals.

TRUE

Total factor productivity is a measure of output that is not explained by the number of inputs used. True False

TRUE

Which of these changes is likely to increase wages the MOST in a country? Drainage of swampy land allows 2% more land to be farmed. The labor force grows by 2%. The capital-to-labor ratio rises by 2%. Since the growth rate is 2% in all listed situations, wages would increase equally in all situations.

The capital-to-labor ratio rises by 2%.

Which of these explains why the size and the direction of the gap between long- and short-term interest rates are predictors of stages in the business cycle? The time period with higher rates is likely to have higher economic activity than the time period with lower rates. The time period with higher rates is likely to have slower economic activity than the time period with lower rates. When the rates are unequal, the economy is in expansion or contraction; when the rates are equal, the economy is in a peak or trough. When the rates are equal, the economy is in expansion or contraction; when the rates are unequal, the economy is in a peak or trough.

The time period with higher rates is likely to have higher economic activity than the time period with lower rates.

Which of these is true in the case of the simple circular flow model with no savings? Total spending is greater than total income. Total spending equals total income only at full employment. Total spending equals total income. Total spending is less than total income.

Total spending equals total income.

Which of these events would NOT lead to higher inflation, all else equal?increased economic activity due to a rise in consumer confidencea disruption in the global supply chain for key inputs of productiona government increasing its money supply in order to pay its rising debt a bumper crop that leads to a sharp rise in farm produce

a bumper crop that leads to a sharp rise in farm produce

Econia's currency depreciates. This will cause: aggregate demand to fall. aggregate demand to rise. a movement downward along Econia's aggregate demand curve. a movement upward along Econia's aggregate demand curve.

aggregate demand to rise.

Which of these would cause a movement along a country's aggregate demand curve, but not a shift in its aggregate demand curve? a rise in the value of stocks in a country's stock market a fall in real interest rates an increase in a country's CPI, meaning that household income does not buy as much an expectation among business owners for profits to increase so that they make more investments

an increase in a country's CPI, meaning that household income does not buy as much

CPI

cost of current period/ cost in base year x 100

Sharon owns a pizzeria and chooses to invest in new capital. She first purchases a new brick oven which increases output by 30% and then purchases an automated meat slicer which increases output by another 10%. Which concept do these capital investments represent? catch-up effect of capital investment negative marginal returns to capital decreasing capital-to-labor ratio diminishing returns to capital

diminishing returns to capital

Countries with abundant capital will not gain as much per additional piece of capital than countries with little capital with which to start. This phenomenon is called the law of: diminishing returns. diminishing marginal rate of substitution. increasing opportunity cost. increasing returns to scale.

diminishing returns.

In the circular flow diagram, the clockwise direction shows the flow of _____, where households supply _____ and businesses supply _____. money; purchases of goods and services; income to households money; labor; goods and services goods and services; labor; goods and services goods and services; purchases of goods and services; income to households

goods and services; labor; goods and services

All else equal, rising incomes in other countries will cause U.S. aggregate demand to _____, while a rising value of the U.S. dollar will cause U.S. aggregate demand to _____. decrease; also decrease decrease; increase increase; also increase increase; decrease

increase; decrease

A reduction in the income tax rate for individuals generally leads to a(n) _____ in aggregate demand, resulting in a _____ shift of the aggregate demand curve. increase; leftward decrease; leftward increase; rightward decrease; rightward

increase; rightward

When an economy takes an unusually long time to reduce its unemployment rate following a recession, this is commonly referred to as a: vicious cycle. prolonged business cycle. natural recession. jobless recovery.

jobless recovery

Countries that have lower scores in the Index of Economic Freedom typically have _____ growth rates and _____ GDP per capita. lower; lower lower; higher higher; lower higher; higher

lower; lower

In the circular flow diagram, the counterclockwise direction shows the flow of _____, where households supply _____ and businesses supply _____. money; purchases of goods and services; income to households money; labor; goods and services goods and services; labor; goods and services goods and services; purchases of goods and services; income to households

money; labor; goods and services

Frictional Unemployment

occurs when people voluntarily change jobs. After a person leaves a company, it naturally takes time to find another job. Similarly, graduates just starting to look for jobs to enter the workforce add to frictional unemployment.

Institutional Unemployment

results from long-term or permanent institutional factors and incentives in the economy.

Production function exhibits constant returns to scale if: some percentage increase in all inputs leads to the same percentage increase in output. output is constant regardless of any increase in inputs. the returns to the inputs are constant all the time. capital-to-labor ratio (K/L) is constant at all scales of production.

some percentage increase in all inputs leads to the same percentage increase in output.

Structural Unemployment

technological change in the structure of the economy in which labor markets operate. Technological changes can lead to unemployment among workers displaced from no longer-needed jobs.

All of these would cause a decrease in a country's aggregate demand EXCEPT: the country's currency appreciates in value. the average level of household debt rises. business expectations of the return on investment fall. the country's CPI rises.

the country's CPI rises.

The expansion phase of the business cycle is the period between the _____ and the _____, and is generally _____ in length than the recession phase of the business cycle. peak; trough; shorter peak; trough; longer trough; peak; shorter trough; peak; longer

trough; peak; longer

Cyclical Unemployment

where labor forces are reduced as a result of business cycles or fluctuations in the economy, such as recessions