Macro Exams Summer

If actual real GDP is $17.6 trillion and potential real GDP is $18.6 trillion, then the gap of __________________ exists.

$1.0

Indirect Business Taxes: $1,200 Corporate Profits: $1,500 Proprietors' Income: $640 Rental Receipts: $175 Net Interest Income: $650 Depreciation: $1,775 Wage and Salary Income: $8,200 According to the above table, net domestic product is

$12,365

If households receive $200 in net interest income, wages equal $9,500, rental receipts on land are $700, total business profits before taxes are $2,000, depreciation is $1,900, and indirect business taxes are $1,200, then Gross Domestic Product is

$15,500

If consumption expenditures are $100 million, net private domestic investment is $50 million, imports are $20 million, exports are $10 million, government spending on goods and services is $40 million, Social Security spending is $15 million, capital consumption allowance equals $25 million and sales of existing homes equals $40 million, then GDP equals $

$205 million Before we can find GDP, we need to find Gross Private Domestic Investment, which is Net Private Domestic Investment ($50 million) plus Capital Consumption Allowance (depreciation = $25 million). So, Gross Private Domestic Investment = $75 million. Consumption expenditures = 100 million Gross Private Domestic Investment = $75 million Government Purchases = $40 million Net Exports (exports - imports) = -$10 million ($20 - $10) So, GDP = $205 million.

If a country's real GDP is $20,000 billion and that country's population is 875 million, then real Gross Domestic Product per capita is

$22,857.14

If consumer spending is $20,000, gross private domestic investment is $9,500, government purchases are $11,000, exports are $2,000, imports are $3,000, depreciation is $1,900, and indirect business taxes are $1,200, then Gross Domestic Product is

$39,500

Suppose the economy has only three goods. Year: 2015 Price of Burgers: $4 Quantity of Burgers: 100 Price of Soda: $2 Quantity of Soda: 170 Price of Shoes: $50 Quantity of Shoes: 40 Year: 2016 Price of Burgers: $5 Quantity of Burgers: 130 Price of Soda: $2.50 Quantity of Soda: 200 Price of Shoes: $75 Quantity of Shoes: 50 Year: 2017 Price of Burgers: $6 Quantity of Burgers: 160 Price of Soda: $3.50 Quantity of Soda: 250 Price of Shoes: $80 Quantity of Shoes: 60 Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, Nominal GDP for 2016 is Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, Real GDP for 2016 is Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, then the growth rate in Real GDP between 2015 and 2016 is

$4900 $3420 24.82%

Assuming net exports (NX) is equal to zero, the equation for National Saving is SN =

(Y + TR - T - C) + (T - G - TR)

What are the two thinks a bank primarily does?

*Accepts deposits *Grants loans

Suppose actual real GDP is $15 trillion and potential real GDP is $16 trillion. If the marginal propensity to consume (MPC) is 0.75, then lump-sum taxes should change by $ ____________ billion to close this gap.

*Actual GDP is lower than potential GDP by $1 trillion. *So, use the LUMP-SUM multiplier... -MPC/1-MPC = -3 Change in GDP = Tax multiplier *Change in tax OR Change in tax = Change in GDP/ Tax multiplier 1/-3 =-.33 trillion AKA 333 billion decrease

Assume taxes are zero and the consumption function is C = 0.80(Yd) + $250. Based on this information, the break-even (short-run equilibrium) level of income is $ ___________________.

*Break even level of income is when income = consumption or savings = 0. C = 0.80(Yd) + $250. *At break even point, C = Y.....so Y= .80Y + 250 Y -.80Y = 250 Y = 250 / .2 Y = 1250

Which of the following are determinants of labor supply?

*Demographics *Job qualifications *Non-wage benefits

Which of the following is a function of the Federal Reserve? Choose all that apply.

*Hold back deposit reserves. *Regulate the money supply. *Collect and clear checks.

Which of the following is related to a surplus in the labor market?

*Labor quantity demanded is less than labor quantity supplied *Occurs at any PRICE below the equilibrium wage *AKA unemployment

Which of the following tools would the Federal Reserve use to increase the money supply?

*Lower the discount rate *Buy bonds (U.S. Treasuries) *Lower the reserve ratio

If the United States has a net export surplus, which of the following is true?

*National domestic saving is greater than investment *Net capital flows is negative *Net foreign investment is positive

Which of the following is a primary tool of the Federal Reserve?

*Open market operations *The discount rate *The reserve ratio

Which of the following are types of money demand?

*Precautionary demand *Asset demand *Transactions demand

Which of the following are explanations for wage differences?

*Preferences *Customer discrimination *Compensating differntials

Which of the following is a function of the Federal Reserve?

*Regulates the money supply *Holds depository institutions reserves *Acts as the "lender of last resort"

Which of the following is a characteristic of money?

*Standard of deferred payment *Medium of exchange *Store of value *Unit of accounting

Suppose that in a closed economy GDP is $13 trillion, consumption is $7 trillion, taxes are $3 trillion and the government runs a surplus of $1 trillion. Based on this information, private saving $____________________ trillion, public saving is $_________________ trillion, and national saving is $_______________ trillion.

*Surplus budget occurs when the government spends less than the tax revenue. Surplus = Tax revenue = Government spending So..... government spending = $2 trillion In a closed economy, GDP = C + I + G Solve for I. I = $4 trillion Private Saving: Y - C - T 13 - 7 - 3 = 3 trillion Public Saving: T - G 3 - 2 = 1 trillion National Saving: Private + Public Saving = $4 trillion

Which of the following are determinants of labor demand?

*Technology *Physical Capital *# of Items

The demand for labor depends on which of the following?

*The marginal productivity of labor *The marginal revenue from selling the additional output

If the reserve ratio is 15% and you deposit $200 in cash into your bank, then that deposit changes the money supply for your bank by $ _________________.

0

A country's growth rate is 4.0%. If the growth rate of capital accounts for 2.1%, the labor force growth rate accounts for 0.8%, and the growth rate of technology accounts for 0.5%, then the growth rate in productivity for this country is

0.6

Suppose a bank has $2,500,000 in checkable deposits and the required reserve ratio is 20%. Also, the bank is currently holding $700,000 in total reserves. As a result, the banking system can increase the money supply by $ ___________.

1,000,000

During the course of a year, the labor force consists of the same 1,450 people. Of these, 55 lack skills that employers desire and hence remain unemployed throughout the year. At the same time, every month during the year, 27 different people become unemployed, and 27 other different people who were unemployed find jobs. Also, 12 different people are unemployed due to seasonal factors. 15 people are unemployed due to the overall decline in the economy. Based on this information, the cyclical unemployment rate is

1.03%

The real rate of interest equals 8%, and the expected rate of inflation equals 2%. The nominal rate of interest is

10%

Suppose the economy has only three goods. Year: 2015 Price of Burgers: $4 Quantity of Burgers: 200 Price of Soda: $1 Quantity of Soda: 50 Price of Shoes: $50 Quantity of Shoes: 40 Year: 2018 Price of Burgers: $5 Quantity of Burgers: 200 Price of Soda: $1 Quantity of Soda: 60 Price of Shoes: $75 Quantity of Shoes: 50 Assume the base year is 2015. Based on the information above, the price index for 2015 is ______ and the price index for 2018 is ________

100 142.11

Year 2005 Nominal GDP 8950 billion Price Level Index 100 Year 2009 Nominal GDP 9250 billion Price Level Index 120 Using the data in the above table, if 2009 is the base year, then the real GDP for year 2005 is $ ______ billion Base Year Price Level Index 2005 = 100

10740.43 First, reset the Price Index values to 2009. So, the Price Index for 2005 = (100/120) * 100 = 83.33 Second, find real GDP for 2005 = ($8,950/83.33) * 100 = $10,740.43.

Year: 2014 Real GDP: 16220.222 Nominal GDP: 17735.933 Year: 2015 Real GDP: 16547.619 Nominal GDP: 18287.226 Year: 2016 Real GDP: 16851.420 Nominal GDP: 18729.130 Refer to the table above. Consider the following data on nominal GDP and real GDP (values are in billions of dollars). The GDP deflator (price level) for 2016 equals

111.4

(Base year 2004) 2009 Meat - quantity: 100 - price: $10 - quantity: 120 - price: $12 Potatoes - quantity: 200 - price: $2 - quantity: 180 - price: $3 Refer to the above table. Assume the market basket for the consumer price index has two products — meat and potatoes — with the following values in 2004 and 2009 for price and quantity: The Consumer Price Index for 2009 equals

128.57 The 2004 Market Basket = [(100 * $10) + (200 * $2)] = $1,400. The 2009 Market Basket = [(100 * $12) + (200 * $3)] = $1,800. The Consumer Price Index for 2009 = ($1,800/$1,400) * 100 = 128.57.

Employment: 138,381 Unemployment: 15,340 Adult Population: 236,743 Based on the information above, the Civilian Labor Force is ______ and the Non-Labor Force is ________.

153,721 83,022

Suppose two countries have a per capita real GDP of $25,000 in 2017. Econoland has a growth rate of 4 percent and Macropolis has a growth rate of 5 percent. By 2020, the per capita real GDPs for Econoland is $_______ and for Macropolis is $________.

28,121.60 and 28,940.63

After four years, if Country X's average annual growth rate is 8.6 percent and the initial real GDP was $2,756.0 million, then the real GDP will be $ ______ million

3833.5 Real GDP = $2,756.0 million * (1.086)4 = $3,833.5.

Suppose net domestic product is $4.8 billion, net income earned abroad is $0.7 billion, other business income adjustments net of indirect business taxes and transfers are $0.4 billion, and personal income taxes are $0.8 billion. Then, national income equals $______ billion.

4.4 National Income = $4.8 billion + $0.7 billion + $0.4 billion = $5.9 billion

Suppose a bank has $2,500,000 in checkable deposits and the required reserve ratio is 10%. Also, the bank is currently holding $700,000 in total reserves. As a result, this bank can increase the money supply by $ _____________________.

450,000

If the nominal interest rate is 9 percent and the anticipated inflation rate is 4 percent, then the real interest rate is

5% The real interest rate = 9 percent minus 4 percent = 5 percent.

Suppose a bank has $2,500,000 in checkable deposits and the required reserve ratio is 20%. Also, the bank is currently holding $700,000 in total reserves. As a result, this bank's required reserves are $ _________ and its excess reserves are $ ________.

500,000 ; 200,000

Employment: 138,381 Unemployment: 15,340 Adult Population: 236,743 Based on the information above, calculate the Labor Force Participation Rate.

64.93

During the course of a year, the labor force consists of the same 1,450 people. Of these, 55 lack skills that employers desire and hence remain unemployed throughout the year. At the same time, every month during the year, 27 different people become unemployed, and 27 other different people who were unemployed find jobs. Also, 12 different people are unemployed due to seasonal factors. 15 people are unemployed due to the overall decline in the economy. Based on this information, The actual unemployment rate is__________ The natural rate of unemployment is__________

7.52% 6.48%

Employment: 138,381 Unemployment: 15,340 Adult Population: 236,743 Based on the information above, calculate the Unemployment Rate.

9.98

Using the AD/AS model, what was the primary cause of the 2007 - 2009 Great Recession?

A decrease in aggregate demand.

According to the loanable funds model, which of the following will decrease the equilibrium level of investment and decrease the equilibrium interest rate, holding everything else constant?

A decrease in technological change.

For a given (fixed) price level, an increase in aggregate demand has ______________ effect on real GDP then when prices are more flexible.

A larger

Assume taxes are zero and the consumption function is C = 0.80(Yd) + $300. If disposable income (Yd) is $500, then the average propensity to consume (APC) is _________________ and the average propensity to save (APS) is _____________________.

APC = consumption/real disposable income 1. Calculate the consumption value using the formula b*(Yd) + a. So... with $500 disposable income, consumption = $700. 2. Divide consumption ($700) by $500 = 1.4 APS = saving /real disposable income APC + APS = 1. So, since APC is 1.4 1.4 + X = 1 1-1.4 = -.40

Consumption = $100 + 0.90(Yd), Investment Spending = $350, Government Purchases = $350, Taxes = $200, Exports = $40 and Imports =$150. Based on this information, the actual equilibrium real GDP is $ _____________.

Actual Equilibrium Real GDP: Y=C+I+G+NX Y=100+.9Yd+350+350+40-150 T = 200 Y=690+.9(Y-T) Y=690+.9(Y-200) Y=690+.9Y-180 Y= $5,100

An increase in consumer spending causes the_______ curve to shift to the___________

Aggregate Demand right

Given the type of gap identified in the prior preview question, the proper Keynesian response is to the ________________ curve.

Aggregate demand

A decrease in federal government purchases shifts the ______________________ curve(s) to the ___________________.

Aggregate demand ; left

Over the last twenty years, real GDP in the U.S. economy has increased and there has been inflation. This indicates that _________________

Aggregate demand has increased more than short-run supply.

Which of the following is a key to economic development?

Allow foreign direct investment Establish a system of property rights Encourage saving and investment Develop a healthy and educated population

Which of the following will cause an increase in economic growth? A reduction in the stock of physical capital A reduction in labor force participation A reduction in the unemployment rate An increase in human capital

An increase in human capital

Which of the following causes a movement along the per-worker production function?

An increase in the amount of capital.

In the loanable funds model, which of the following would you expect to increase the equilibrium rate?

An increase in the budget deficit.

The largest category recording international transaction among countries is _____________________.

Balance of Payments

Using prices and quantities, what is the formula for real Gross Domestic Product (GDP)? Real GDP =

Base Year Price * Current Year Quantity

If a corporation goes bankrupt, which of the following has first claim on the firm's assets?

Bondholders

Assume taxes are zero and the consumption function is C = 0.80(Yd) + $300 and Investment is I = $200. Based on this information, the (short-run) equilibrium level of GDP (income) is $ ____________________________.

C = 0.80(Yd) + $300

In order to protect your nominal income from inflation, you should always ask for a(n)

COLA

A firm sells its output for $40 per unit. When it increases its labor from 4 workers to 5 workers its output increases from 15 to 18 units. The marginal revenue product of the 5th worker is $____________.

Calculation: (18-15)=3*40=120

Which of the following is an example of indirect financing?

Chase bank lends money to a customer.

Which of the following is a true statement?

Classical economists believed price adjusted more than output when aggregate demand fell, while Keynes argued real GDP adjusted more than prices.

Which of the following factors affect the Aggregate Demand curve?

Consumption Government purchases Exports Imports Investment

Assume taxes are zero and the consumption function is C = 0.75(Yd) + $200. Based on this information, autonomous consumption is $ _______________ and the marginal propensity to consume is ______________ . If income increases by $200, then consumption increases by $ ________________.

Consumption formula: b*(Yd) + a a= autonomous consumption, so... 1. 200 b= marginal propensity to consume, so... 2. .75 (yD)= disposable income By using the formula, you can see that the value increased by the amount increased by the change in income.

If the price of a firm's bond increases, then the ____________.

Cost of external funds decreases.

What is the formula for a price index? The Current Year Price Index =

Current Year Price * Base Year Quantity

Assume the MPC = 0.75. In order to close a Recessionary gap of $450 billion, the government should _________________ taxes by $ ________________ billion to solve this gap.

Decrease ; 150

A decrease in government purchases will lead to a(n) ________________ in the price level and a(n) _______________ in real GDP.

Decrease ; decrease

In the AD/AS model with an upward sloping SRAS curve, if autonomous net exports decreases by $75 billion and the marginal propensity to consume (MPC) is 0.75, then there is a(n) _____________ in ______________ by ____________ billion.

Decrease ; equilibrium real GDP ; by less than $300

According to traditional Keynesian economics, if interest rates increase, then real actual GDP will ____________ and the price level will _________________.

Decrease ; remains constant

Which of the following will shift the consumption function upward? A(n) _______________.

Decrease in interest rates.

Which of the following is an example of discretionary fiscal policy? A(n) __________.

Decrease in lump-sum taxes

According to the loanable funds model, decreasing the amount of saving and increasing the amount of consumer spending ___________ investment expenditures, and _____________ long-run economic growth in the economy.

Decreases ; decreases

In the COMPLEX AD/AS model assume actual real GDP is $15 trillion, the price level (GDP Deflator) is 160 and potential real GDP is $15.1 trillion. A year later business competition increases, inflationary expectations increase, and real interest rates increase. However, the business competition "shock" will be MORE than the expectations & real interest rates "shocks," but the real interest rates "shock" is MORE than the expectations "shock". As a result the price level ____________ , real GDP __________________ and unemployment _______________________.

Decreases ; decreases ; increases

An increase in the wage rate ____________ the quantity demanded of leisure and _______________ the quantity supplied of labor.

Decreases; Increases

The demand for bakers decreases. As a result, the equilibrium wage for bakers _________ and the equilibrium quantity of bakers _______________ .

Decreases; decreases

When foreign firms decrease their purchases of U.S. Treasuries, the ________________ for U.S. dollars ____________.

Demand for; decreases

If the rate of returns on foreign stocks and bonds has increased relative to the rate of returns on U.S. stocks and bonds, the the U.S. dollar will _____________.

Depreciate

Suppose the exchange rate for one Canadian dollar was $.90 U.S. dollars. If the exchange rate for one Canadian dollar changes to $.95 US dollars, then we know the U.S. dollar has ________________, the Canadian dollar has _______________, and the U.S. net exports will ___________.

Depreciated; appreciated; increase

When the Federal Reserve increase the money supply, the U.S. dollar ________________.

Depreciates the U.S. net exports increase.

Which of the following is a key to economic development?

Developing an educated population. Allowing for creative destruction. Establishing a system of property rights.

According to Keynes, the primary determinant of consumption (and saving) is ______________.

Disposable income

If a firm's production is a function of labor, then a decrease in the amount of technology causes a(n) ____________________ the firm's production function.

Downward shift of

Which of the following people would be considered unemployed? Homer, who lost his job at the power plant and is not looking for work Edna, who lost her job as a teacher and is currently searching for a new job Lenny, who is working part time at a fast food restaurant Abe, who is retired

Edna, who lost her job as a teacher and is currently searching for a new job

The proper fiscal response is for the government to use ___________ fiscal policy.

Expansionary

The formula for present value is Present Value =

Future Value /(1 + r)^N

Which of the following factors affect the Long-Run Aggregate Supply curve?

Human Capital Technology Productivity Labor and Physical Capital Saving

Suppose actual real GDP is $13 trillion and potential real GDP is $14 trillion. If the marginal propensity to consume (MPC) is 0.75, then government purchases should change by $ _______________ billion to close this gap.

If actual real GDP is less than the potential GDP, there exists a negative output gap = 1 trillion. To close the gap, the aggregate demand needs to be increased by $1 trillion. *So, use the SPENDING multiplier formula... 1/(1-MRC) MPC = .75 1/(1-.75)=4 Then... Change in AD = Spending multiplier* Change in government purchases 1 trillion = 4*X =.25 trillion SOOOOO =250 BILLION

The _________ effect explains why at higher wages, people will spend ________ time working and _________ time at leisure.

Income; less; more

Given the type of gap identified in the prior preview question, the proper Keynesian response is to _________________ curve.

Increase

If the MPC is 0.9 and exports rise by $100 million due the global recession, then real GDP will ________________ by $ _____________ million.

Increase ; 10

In the loanable funds model, a government budget surplus from reduced government spending (no change in net taxes) will ________________ the level of investment in the economy and ________________ the level of saving (private plus public) in the economy.

Increase ; Increase

In the Aggregate Expenditure model, if total planned spending (C + I + G + NX) = $10 trillion and real GDP = $12, then the unplanned inventories will ________________and real GDP will _________________ in the future.

Increase ; decrease

If the government increases lump-sum taxes by $100 billion and increases government purchases by $100 billion at the same time and the MPC = 0.75, then real GDP will _______________.

Increase by $100 billion.

From an initial long-run equilibrium, if aggregate demand grows slower than long-run and short-run aggregate supply, then the proper fiscal policy is to _____________.

Increase government purchases

To close a recessionary gap through fiscal policy, the government should ________________.

Increase government spending in order to increase aggregate demand.

In the AD/AS model assume 2022 began with potential real GDP = $13.7 trillion, while actual real GDP = $14 trillion and the Price Level (GDP Deflator) = 210. A year later the Price Level = 212 and actual real GDP = $14.1. Based on their relative effects on the AD/AS model, which of the following scenarios best explains this new outcome? The effect of a(n)

Increase in consumer spending is MORE than the effect a decrease in natural gas prices.

If the reserve ratio is 25% and Federal Reserve buys $100,000 in U.S Treasury bonds, then the money supply for the banking system __________________ by $ _______________.

Increases ; 400,000

According to the loanable funds model, if the government changes from a consumption tax to an income tax, then the equilibrium interest rate ____________ and the equilibrium quantity of loanable funds ___________.

Increases ; decreases

In the Loanable Funds Model, an increase in the demand for loanable funds ____________________ the equilibrium interest rate and ___________ the equilibrium level of Saving, Investment, and Loanable Funds.

Increases ; increases

In the loanable funds model, if net taxes on business spending decreases, then the equilibrium level of saving _________________ and the equilibrium interest rate ________________.

Increases ; increases

The federal government decreases taxes. As a result of this fiscal policy the price level (index) ____________________, real actual GDP ____________and unemployment ____________.

Increases ; increases ; decreases

According to the loanable funds model, if the U.S. federal government allows for a tax holiday for U.S. businesses in spending on capital goods, then the equilibrium interest rate ___________ and the equilibrium level of saving _____________ and investment _________________.

Increases ; increases ; increases

In the AD/AS model, if businesses expect higher future profits while inflationary expectations decrease simultaneously, then real GDP, employment ____________________ and the price level __________________________

Increases ; may increase, decrease, or remain unchanged

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices, this is an example of ______________________.

Indirect finance.

In the AD/AS model assume actual real GDP is equal to potential real GDP. If business taxes decrease, then a(n) ______________ gap occurs, leading to a(n) ______________ in the price level and a(n) ______________ in actual real GDP.

Inflationary ; increase ; increase

When actual real GDP is greater than potential real GDP, then the economy is experiencing a(n) ___________.

Inflationary gap

The opportunity cost of holding money is the ____________.

Interest foregone from holding another financial asset.

How does the federal government finance a budget deficit?

It borrows funds by selling Treasury bonds.

In the bond market, if the interest rate on a bond increases, what happens to the bond price?

It decreases

In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford?

It shifted up

The benefit of holding money is _____________.

Its liquidity

Which of the following is considered investment?

James purchases a new car to replace an old car in his cab business.

In the DYNAMIC AD/AS model assume you began with an inflationary gap. All three curves have shifted resulting in the Price Level rising (inflation), output (Real GDP) falling, and unemployment falling. This outcome is explained when the _____________ curve has decreased MORE than the ____________ curve decreased, which in turn decreased MORE than the ___________ curve decreased.

LRAS ; SRAS ; AD

If consumers decide to be less frugal and save less of their income, then this will cause a ________________ the supply curve for loanable funds.

Leftward shift of

In the AD/AS model with an upward sloping Short-Run Aggregate Supply (SRAS) curve, if the marginal propensity to consume is 0.75 and autonomous exports increase by $100 billion, then the change in real GDP is ___________________.

Less than $400

An increase in long-run economic growth is illustrated by the _______ curve shifting _______.

Long-Run Aggregate Supply right

According to Keynes, one explanation for inflexible (sticky) prices is .....

Long-term labor contracts

The original Keynesian economic theory states that _____________.

Many prices would not decline even when aggregate demand decreases.

A decrease in the amount of labor causes a(n) __________________ the marginal product curve.

Movement up along

If a firm's production is a function of labor, then an increase in the amount of labor causes a(n) ___________________________ the firm's production function.

Movement up along

If the marginal propensity to consume (MPC) is 0.90 and net exports increases by $120 million, then real Gross Domestic Product (GDP) will [ Select ] by $___________________ million.

Multiplier = 1/(1-MPC) = 1/(1-.9) =1/.1 =10 *An INCREASE in net exports by $120 million will decrease autonomous spending by $120 million.* Multiplier = Change in real GDP/Change in autonomous spending 10=change in real GDP/120 million So... GDP will rise by $1,200 million

Which of the following is a determinant (factor) affecting the Aggregate Demand curve?

Net exports Government purchases Consumer spending Business spending

Does the overall size of the federal debt matter?

No. What matters is the debt relative to economy's income (real GDP).

Which of the following would be included when calculating Gross Domestic Product? A Social Security check for $800 The purchase of a used $10,000 automobile The purchase of a previously owned house for $70,000 None of the options are correct.

None of the options are correct.

A Big Mac costs $4 in the United States and 7 euros in Germany. If the exchange rate is $1 = 2, then the purchasing power parity predicts the U.S. dollar is _____________. In the long run, the demand for the U.S. dollllar will ___________ and the value of the U.S. dollar will ______________.

Overvalued; decrease ; depreciate

An increase in the interest rate will cause ______________________.

Planned investment spending to decrease.

Suppose we observe the price level has decreased and actual real GDP has increased. Using the AD/AS model, an explanation for this is ____________________.

Productivity is increased

Assume nominal exchange rate for the domestic U.S. dollar is 1 Euro = 1 dollar, if the price level in the U.S. increases relative to the EU, then the _____ exchange rate __________.

Real ; increases

If actual real GDP is $17.6 trillion and potential real GDP is $18.6 trillion, then a __________ exists.

Recessionary

When the actual real GDP is $17.6 trillion and potential real GDP is 18.6 trillion, a ______________ gap exists.

Recessionary

Automatic stabilizers have the effect of _____________________.

Reducing inflationary and recessionary gaps.

Assume taxes are zero and the consumption function is C = 0.80(Yd) + $200. Based on this information, the saving function is S = ______________ (Yd) - $ _______________ .

S = .2(Yd)-$200 (1 -.8 = .2) 1st part then... the disposable income is the same as in the consumption function ($200)

In the AD/AS model, assume there's a recessionary gap. A short-lived decrease in natural gas prices caused by increase of natural gas-producing facilities by a discovery of a new natural gas deposit will shift the ____________ curve to the ______________ and unemployment will ______________.

SRAS ; right ; decrease

The determinants (factors) affecting the Long-run Aggregate Supply curve are

Saving Productivity Education Number of resources Technology

Which of the following is a determinant of long-run economic growth?

Saving Productivity Education Number of resources Technology

Which one of the following is true? Saving enables economic growth by providing for investment in the capital stock. International comparisons have found no relationship between the rate of saving and the level of per capita real GDP. Economies with sophisticated credit markets, such as the United States, have no need for saving. Saving deters economic growth, because it takes money out of circulation and people spend less.

Saving enables economic growth by providing for investment in the capital stock.

If disposable income is $40,000 and consumer spending is $30,000, what are the saving level, the average propensity to consume (APC), and the average propensity to save (APS)?

Saving level: 10,000 APC: .75 APS: .25

Which of the following are one of the stages of economic development?

Services Agricultural Manufacturing

In the (Modern) Keynesian Model with inflexible prices, the shape of the ___________ curve is ________________.

Short run aggregate supply ; upward sloping

Assume taxes are zero and the consumption function is C = 0.80(Yd) + $300 and Investment is I = $200. Based on this information, the (short-run) equilibrium level of GDP (income) is $____________________.

Short-run Equilibrium Level Condition: Y = C + I + G C = 0.80(Yd) + $300 I = 200 T = 0 Y = 300 + .8(Y-T) + 200 Y = 500 + .8(Y-0) Y = 500 + .8Y Y -. 8Y = 500 Y = $2,500

How are saving and investment illustrated in the market for loanable funds?

Supply represents saving, while demand represents investment.

In the current year, if government spending is $1.5 trillion and government taxes are $1.7 trillion, then the government has a ________________ of $ ___________ trillion.

Surplus ; .2

Using the balance of payments, a sale of U.S. cars to foreign residents is recorded as a __________ in the __________ account.

Surplus ; financial

In the loanable funds model, the equilibrium level of Investment decreases and equilibrium interest rates increases. Which of the following could explain these changes?

The government increased the tax rate on savings

Which of the following best explains a decrease in the equilibrium wage for bakers and a decrease in the equilibrium quantity of bakers in Bloomington?

The number of Bloomington bakeries decreases.

What is the one primary assumption differentiating Keynesian and Classical economic models?

The price level (inflation).

Government debt is __________

The sum of all deficits and surpluses

The marginal revenue product of labor is the change in________________ from ______________.

Total Revenue; Hiring one more worker

What is the largest category of federal government expenditures?

Transfer payments

When comparing the $3 price for a gallon of milk to a $2.75 price for a gallon of gasoline, money functions as a _______________.

Unit of accounting

What is the primary assumption of the Keynesian model?

Wages and prices are inflexible.

When foreign residents buy U.S. Treasury securities to finance the budget deficit,

We can also anticipate an increase in the trade deficit.

What is the formula for measuring the expenditure approach to measuring GDP (Y)?

Y = C + I + G + NX (exports - imports)

Is it possible for the unemployment rate to rise at the same time that the number of people working increases?

Yes, if labor force growth outpaces growth in the number of people working

Using the AD/AS model, is there any difference between a decline in business spending and an increase in oil prices in an economy?

Yes, since the oil shock also leads to inflation.

Are recessions caused by financial markets different than recessions not caused by them?

Yes, they cause deeper, more prolonged recessions.

Which of the following is not included in GDP? An automobile dealer's inventory of cars declines over the last month. The government purchases new U.S. Postal Service trucks. You pay rent to your landlord. You win $20 in a poker game and don't report the income.

You win $20 in a poker game and don't report the income.

Which of the following factors ONLY shift the short-run aggregate supply curve and NOT the long-run aggregate supply curve? Choose all that apply. a. Inflationary expectations b. Oil prices c. Income d. Productivity e. Technology f. Wages

a. Inflationary expectations b. Oil prices f. Wages

Which of the following only affects the short run aggregate supply curve? Choose all that apply. a. Inflationary expectations b. Saving c. Technology d. Number of resources e. Input prices

a. Inflationary expectations e. Input prices

Which of the following is a determinant (factor) affecting the Consumption Function? Choose all that apply. a. Interest rates b. Wealth c. Population d. Price level e. Disposable income f. Technology

a. Interest rates b. Wealth c. Population d. Price level

Which of the following affect both the long-run and short run aggregate supply curves? Choose all that apply. a. Saving b. Quantity of labor c. Investment d. Government purchases e. Productivity f. Consumption g. Human capital h. Technology i. Net exports

a. Saving b. Quantity of labor e. Productivity g. Human capital h. Technology

Which of the following are characteristics associated with the Keynesian Model? Choose all that apply. a. Short run view b. Aggregate demand primarily affects economic growth (real GDP) c. Flexible prices d. Long-run view e. Inflexible prices f. Short run aggregate supply primarily affects economic growth (real GDP) g. Long-run aggregate supply primarily affects economic growth (real GDP)

a. Short run view b. Aggregate demand primarily affects economic growth (real GDP) e. Inflexible prices

Which of the following are conditions for the Complex Aggregate Supply and Aggregate Demand Model? Choose all that apply.

a. The change in the (output) gap determines the change in the unemployment rate b. All three curves must shift c. The relative magnitudes of each of the shifts must be specified d. Short-run equilibrium determines the change in real GDP and inflation

Which of the following is a possible offset to fiscal policy?

a. The crowding-out effect b. Time lags d. Supply-side Economics e. The Ricardian Equivalence Theorem

Assume a represents autonomous consumption and b represents the slope of the consumption function. The consumption function is C = __________________ where the slope of the consumption function represents the ________________.

a. b*(Yd) + a b. marginal propensity to consume (MPC)

If the marginal propensity to save is 0.1 and the real GDP needs to be increased by $500 billion, then ______________

an increase in autonomous spending of $50 billion will lead to the increase of $500 billion.

What could cause a decrease in the price level and simultaneously an increase in GDP similar to the 1920s in the United States? an increase in interest rates. an increase in productivity. a decrease in consumer confidence. a decrease in interest rates.

an increase in productivity.

An advantage of automatic stabilizers over discretionary fiscal policy is that ________________.

automatic stabilizers are not subject to the same time lags as discretionary fiscal policy.

Which of the following is a fiscal policy tool? Choose all that apply. a. Money supply b. Government purchases c. Interest rates d. Taxes

b. Government purchases d. Taxes

Which of the following is an example of direct finance? Choose all that apply. a. Your paycheck is directly deposited into your checking account at your local bank. b. You buy a U.S. Treasury bond. c. You sell Apple stock. d. You withdraw money from your savings account.

b. You buy a U.S. Treasury bond c. You sell Apple stock.

All the following are assumptions of the classical model EXCEPT buyers and sellers react to nominal money prices rather than to relative prices. people are motivated by self-interest. pure competition exists. wages and prices are flexible.

buyers and sellers react to nominal money prices rather than to relative prices.

Which of the following shifts the short run aggregate supply curve, but not the long-run aggregate supply curve? Choose all that apply. a. Saving b. Labor c. Inflationary expectations d. Productivity e. Wages f. Capital goods

c. Inflationary expectations e. Wages

Using the AD-LRAS model, an increase in capital accumulation cause the price level to _______ and potential real GDP to __________.

decrease increase

Using the AD-LRAS model, which of the following causes the price level to increase and real potential GDP to decrease? A(n)

decrease in the labor-force participation rate.

Suppose the government increases lump-sum taxes. This causes ____________.

disposable income to decrease, which causes consumption spending to decrease and aggregate demand to decrease.

When federal government's policy on government purchases and taxes impact the economy is an example of a(n) ______________ lag.

effect

Many economists argue that real GDP is not a good measure of economic well-being because it

excludes the environmental quality of life.

The period between the business cycle trough and business cycle peak is called a(n)

expansion

According to the balance of Payments, if the current account is -$100 billion, the _____________ account must be _________ billion.

financial; 100

A 0.5 percent change in the growth rate

has a significant effect on long-run real GDP over time.

According to the text, data supports the conclusion that lower trade barriers

help boost per capita real Gross Domestic Product (GDP) growth.

Suppose Country A and Country B each have the same real Gross Domestic Product (GDP), equal to $440 billion. Country A has 100 million people and Country B has 175 million people. In this situation, per capita real Gross Domestic Product (GDP) is

higher in Country A.

In the Aggregate Expenditure model, if total planned spending (C + I + G + NX) = $10 trillion and real GDP = $12, then the unplanned inventories will ______________________ and real GDP will __________________ in the future.

increase ; decrease

The duration of unemployment tends to

increase when employment increases

The long-run aggregate supply will increase when

international trade barriers are removed.

The real output of the economy under conditions of full employment

is long-run aggregate supply.

In the AD/AS model with an upward sloping Short-Run Aggregate Supply (SRAS) curve, if the marginal propensity to consume is 0.75 and autonomous exports increase by $100 billion, then the change in real GDP is ____________________________

less than $400 billion

To encourage economic development a country should do all of the following EXCEPT establish a system of property rights. invest in human capital. allow creative destruction to run its course. limit the amount of imports allowed into the country.

limit the amount of imports allowed into the country.

Which of the following is a benefit of long-run economic growth? An increase in

living standards leisure time

An increase in the price level causes a _______ the Aggregate Demand curve.

movement up along

What is the formula for the tax multiplier?

mpc/(1-mpc)

According to the circular flow model, the total expenditure and total income

must equal each other

The best measure of long-run economic growth adjusts

nominal GDP for inflation and population.

A worker who decides to quit their job and go to law school full time is considered to be

not in the labor force

Which of the following is an assumption of the Classical Model?

people are motivated by self-interest

In the absence of well-defined property rights, we would likely find

people with less incentives to take risks.

Long-run economic growth is represented by

potential real GDP

The Long-Run Aggregate Supply curve represents

potential real GDP

To prevent frictional unemployment, we would have to

prevent people from leaving their jobs before finding another job.

Which of the following is an important factor affecting positive economic growth? An increase in

productivity technology education

Refer to the table above. The inflation rates for 2006 to 2007 is _______ and 2007 to 2008 is _______ respectively

question 14 and 15 practice exam

Using the AD-LRAS model, an increase in capital accumulation and a decrease in business taxes causes the Long-Run Aggregate Supply curve to___________and the Aggregate Demand curve to___________ , respectively.

shift right shift right

Long-run economic growth is typically associated with a country's

standard of living

One difference between stocks and bonds is that ___________________.

stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond.

A welder loses his job when the factory is replaced with a hospital looking for specially trained nurses. This is an example of_________ unemployment.

structural

All of the following explain the downward slope of the aggregate demand curve EXCEPT

the presence of unused production capacity and unemployment.

According to the Circular Flow Model, in every exchange the buyer pays ________ amount than the seller receives.

the same

Suppose education spending makes up 20 percent of the Consumer Price Index (CPI), and that the prices for education rise faster than the rest spending on all other items in the economy. On average an IU student spends 40 percent of her income on education. For the average IU student, the CPI

understates the inflation rate because of the importance of education for the average IU student.

What is the formula for measuring the income approach to measuring GDP (Y)? Y =

wages + rent + interest + profit + depreciation + indirect business taxes

The formula for the multiplier effect of a change in the money supply from a deposit is ________.

Δ money supply - money multiplier * Δ excess reserves