MACRO final
Real GDP in terms of reference base year
Price of previous Reference base-year and quantity of year being analyzed
Entrepreneurship
Profit
The source of the fiscal imbalance is ______.
Social Security pensions and Medicare benefits
The graph shows the supply curve of low-fat milk. Suppose the wage rate of diary workers rises. Draw a new supply curve that shows the effect of this event. Label the curve
Supply curve shifts right
What is the law of demand
The Law of demand states that other things remaning the same, the higher the price of the good, the smaller is the quantity demanded.
Which of the following statements illustrates fiscal policy?
The US government has proposed a hike in the corporate tax rate.
1) A macroeconomic equilibrium in which real GDP equals potential GDP is _____ equilibrium. 2) below full-employment: AD and SAS intersect to the left of LAS curve
1) a full-employment; an above full-employment 2)
If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate?
5 percent real interest rate = (nominal interest rate) - (current inflation rate)
In 2016, a country's exports were $1847 billion and imports were $2557 billion. What was the value of net exports?
-710 billion dollars in Net Exports
Oppurtunity Cost
The oppurtunity cost of 1 unit of what you are giving up, for the one unit of what you do
interest rate =
The present value of an amount of money n years in the future is calculated as Present value = Future value/(1+ r)^2 where r is the interest rate.
Equilibrium Price
The price at D=S
If demand increases and supply decreases, what is the effect on equilibrium price and equilibrium quantity?
The price rises and the quantity might increase, decrease or remain the same.
Equilibrium Quantity
The quantity at D=S
Which of the following is NOT a part of the monetary base? A. U.S. government securities owned by the Fed B. Federal Reserve notes C. Chemical Bank's deposits of reserves at the Fed D. First Bank's required reserves held at the Federal Reserve
US gov securities owned by the Fed is NOT part of the monetary base
Desired Reserve Ratio
Desired Reserve Ratio= (reserves / deposits) x 100
Choose the statement that is incorrect. A. A tariff creates a social loss from the decreased quantity of the good consumed at the higher price. B. With the tariff, part of the higher price paid to domestic producers pays the higher cost of domestic production. C. With the tariff, the increased domestic production could have been obtained at a lower cost as an import. D. A tariff creates a social loss because the domestic government loses revenue.
INCORRECT statement: A tariff creates a social loss because the domestic government loses revenue.
Capital
Interest
Labor
Wages
The effect of the United States returning millions of workers to their countries of origin is _____ the U.S. aggregate production function and _____ in potential GDP.
a movement down along; a decrease
If, as Adrienne's income increases, her demand for TVs increases, then for Adrienne, TVs are _______.
a normal good
market basket
a representative collection of goods and services (amount purchased) find total expenditure by multiplying price times quantity and adding them: Expenditure = (.price x quantity)
The use of purchasing power parity prices
accounts for differences in the prices of the same goods in different countries when measuring real GDP.
When real GDP exceeds potential GDP, then the economy has
an inflationary gap.
An economy is in a long-run equilibrium. An increase in aggregate demand creates ______ gap. A rise in the money wage rate decreases ______ and returns the economy to a full-employment equilibrium.
an inflationary; the quantity of real GDP demanded (SAS shifts leftward, and AD shifts rightward)
Two reasons that explain why international trade in 2017 remains restricted are that restricted international trade _______.
benefits domestic producers of import-competing goods and services and generates tariff revenue in developing countries
The tools that a country can use to restrict international trade include all of the following except _______.
changes in the foreign exchange rate
The consumer price index (CPI)
compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
By specialization and trade, two individuals can
consume at a point beyond their individual production possibilities frontiers.
When a good is imported, _______.
consumers gain because they pay a lower price and increase the quantity they consume
When a good is exported, _______.
consumers lose because they pay a higher price and decrease the quantity they consume
When the United States places a tariff on a good, the U.S. ______ and the U.S. ______ from the tariff.
consumers of the good lose; producers of the good gain
The functions of depository institutions include _______.
creating liquidity
Unemployment that is the result of recessions is called
cyclical unemployment
The winners from free trade ______ win the political argument because ______.
do not; the number of winners from free trade are large but the gain per person is too small to make the cost of political activity worth bearing
The government expenditure multiplier is the effect of a change in government expenditure on goods and services on _____.
equilibrium real GDP
The tax multiplier is the effect of a change in taxes on _____
equilibrium real GDP
he key financial institutions in the United States include all of the following EXCEPT A. the U.S. Treasury This is the correct answer.B. government-sponsored mortgage lenders Your answer is not correct.C. the Federal Reserve D. commercial banks, pension funds, and insurance companies
except the U.S. Treasurey
In November 2015, the exchange rate was 0.93 euros per U.S. dollar. By November 2016, the exchange rate had risen to 0.94 euros per U.S. dollar. Explain the imports effect of this change in the exchange rate. As the exchange rate rises, the prices of foreign-produced goods and services to Americans ______ and the volume of U.S. imports ______.
falls; increases
Real GDP
fluctuates around potential GDP
Complements
if the price of one decreases, then the demand for the complement decreases and the demand curve shifts leftward
How can the federal government use discretionary fiscal policy to stimulate the economy? An economy is experiencing a recessionary gap. The government can ______.
increase expenditure or cut taxes to increase aggregate demand
It is unlikely that the United States is on the "wrong" side of this curve because, if it were, a decrease in the tax rate would ______ .
increase tax revenue
Why might fiscal stimulus crowd out investment? Fiscal stimulus that increases an existing government budget deficit ______ loanable funds, which ______ investment.
increases the demand for; increases the real interest rate and decreases
The nominal interest rate minus the real interest rate approximately equals the
inflation rate
Rent seeking _____.
is lobbying and other political activity that aims to capture the gains from trade
The Supply CUrve that illustrates the law of supply
is upward sloping
Circular flow model
left side: factor markets, GDP Goverment expenditure = section of right side
If households expect an increase in their future incomes, they will save
less and consume more today
Which of the following is an example of an import quota? The United States _____ .
limits the quantity of auto parts the U.S. car makers may buy from China
CPI (Consumer Price Index)
measures the change in consumer price over a period of time. CPI for recent year= (units bought in past x current prices) / total spent in past
The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a
medium of exchange.
When real GDP increases, people demand
more real money
When the economy is at full employment the
natural unemployment rate equals the unemployment rate.
In calculating GDP, household production is
not included because there is no market transaction.
uppose the equilibrium interest rate in the money market is 5 percent and the current interest rate is 7 percent. As a result,
people buy bonds and the interest rate falls.
The labor force is defined as the number of
people who are employed and unemployed.
The net gain from international trade is _______.
positive. Consumers gain more than producers lose with imports, and producers gain more than consumers lose with exports.
Harry produces 7 balloon rides and 8 boat rides an hour. Harry could not produce more balloon rides without producing fewer boat rides. Harry is ______ his production possibilities frontier.
prodcuing on
The demand for loanable funds is the relationship between loanable funds and the ________ other things remaining the same.
real interest rate
Which of the following are parts of the business cycles?
recession and expansion
The Federal Reserve System
regulates the nation's financial instituitions and conducts the nation's monetary policy
The larger the public's currency drain from the banking system, the
smaller is the money multiplier.
When a tax is applied to labor income, the result is a ______ full-employment quantity of labor and a ______ potential GDP.
smaller; lower
Real GDP is calculated by _______.
summing together the value of the year's production using the prices of the reference base year
Draw a supply curve that shows what happens in the market for smartphones if the wage rates of workers who produce smartphones fall but all other influences on selling plans remain the same.
supply curve shifts right and equilibrium quantity increases as price goes down
The main reasons for imposing a tariff are _______.
tariff revenue and rent seeking
The Laffer curve is the relationship between the ______ and the ______ .
tax rate; amount of tax revenue collected
An assumption of neoclassical growth theory is that
technological change is random.
When the U.S. government imposes an import quota, all of the following are true except _______
the U.S. government gains
Generational imbalance is ______ .
the division of the fiscal imbalance between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits
Tax cuts will not pay for themselves if ______.
the economy lies to the left of the maximum point on the Laffer curve
An individual is structurally unemployed if
the individual lacks marketable job skills because technology has changed.
Marginal Cost
the next best alternative to a choice
When does potential GDP increase? Potential GDP increases when _______.
the quantity of capital increases
A movement downward along the demand for loanable funds curve occurs when
the real interest rate falls.
An automatic fiscal policy is a fiscal policy action that is triggered by _____. A discretionary fiscal policy is a fiscal policy action that is initiated by _____.
the state of the economy; an act of Congress
If the price rises
there is a movement upward along the demand curve
Which of the following measurements of inflation tracks the rate at which infrequently changed prices are changing?
the sticky-price CPI
Uemployment rate
unemployment/ labor force
Business cycles are
unpredictable, but always have two phases and two turning points.
The tax wedge is the gap between the before-tax and after-tax ______.
wage rates
Given the demand and supply curves in the graph, draw a point at the equilibrium price
where suply and demand intersect
On Saturday morning, you rank your choices for activities in the following order: go to the library, work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library. Your opportunity cost is
working out at the gym.
Net Growth Theory
________ predicts that real GDP per person can grow indefinitely.
n an open market purchase, the Fed ________ government securities, which ________ bank reserves.
buys, increases
Tax revenues ______ during a recession. Needs-tested spending ______ during an expansion.
decrease; decreases
A tax cut pays for itself if the economy lies to the ______ of the maximum point on the Laffer curve. This statement implies that the absolute value of the tax multiplier is ______.
right; greater than 1
Tariff is a _____ imposed on a good when it is _____.
tax; imported
The growth rate of real GDP per person
(Real Gdp per person of earlier year - Real GDP per person of recent year)/ opoulation of current year note: real GDP per person= reald Gdp/ population
A financial decision should be pursued when
. the net present value is positive
How does a change in the quantity of money change the interest rate in the short run? 1) Starting from a short-run equilibrium, when the Fed increases the quantity of money, _______. 2) The price of a bond ______ and the interest rate in the short run ______.
1) people enter the loanable funds market and buy bonds 2) rises; falls
Growth Rate of Real GDP
Real GDP growth rate = (most recent year's real GDP - the last year's real GDP) / the previous year's real GDP
If the demand curve for bottled water shifts leftward and the supply curve of bottled water shifts leftward, the equilibrium
quantity of bottled water definitely decreases.
money multiplier
quantity of money / monetary base
Labor productivity is defined as
real GDP per hour of labor.
If the real interest rate is below the equilibrium real interest rate,
shortage of of loanable funds will cause the real interest rate to rise.
A demand curve that illustrates the law of demand
shows that the quantity demanded increases as the price falls
The idea that a government budget deficit decreases investment is called
the crowdingminusout effect.
If people expect the foreign exchange rate for dollars to rise in the future,
the demand for dollars today increases.
Because of the choices people make in the pursuit of profit, new growth theory argues that
the economy can enjoy a period of indefinite growth.
The quantity theory of money asserts that an increase in the quantity of money
will lead to an equal percentage increase in the price level.
Normative
Opinions
A recessionary gap occurs when
real GDP is less than potential GDP.
Inflation Rate
(CPI of recent year)-(CPI of past year) / CPI of Past year Note: CPI= total average spent OR price x units
If tax revenues are $3,500 billion and the government's budget balance is a $720 billion deficit, calculate the government's outlays.
$4220 goverment outlays = tax revenue +/- budget balance
The government is considering raising the tax rate on labor income. Explain the supply-side effects of such an action and use appropriate graphs to show the directions of change, not exact magnitudes. 1) What will happen to the supply of labor and the demand for labor and why? The supply of labor will ______ and the demand for labor will ______. 2)Because the tax ______ , the equilibrium level of employment will ______ , the before-tax wage rate will ______, and the after-tax wage rate will ______. 3)What will happen to potential GDP, and why? Potential GDP will ______ because ______ .
1) decrease because the tax weakens the incentive to work; not change because labor productivity doesn't change 2) drives a wedge between the take-home wage and the cost of labor; decrease; rise; fall 3) decrease; employment decreases NOTE: graph shows potential GDP move along the PF curve downwards (left)
If the present value of $220 one year from now is $200, then the interest rate is
10 percent
Positive Statement
Factual truths
Which of the following is a liability on the balance sheet of the Federal Reserve System?
Federal Reserve notes
The relationship between the tax rate and the amount of tax revenue collected is called the ______ curve. This curve shows that ______.
Laffer; tax cuts can increase tax revenue
Comparative Advantage
Lower oppurtunity cost
Suppose the current situation is such that the price level is 120, real GDP is $17 trillion, and GDP along the long-run aggregate supply curve is $16.6 trillion. What will take place to restore the longminusrun equilibrium?
Money wage rates will rise until real GDP reaches $16.6 trillion.
Full Employment
Natural unemployment rate = Unemployment rate
When the government imposes a tax on labor income, ______ the production function occurs and potential GDP ______.
a leftward movement along; decreases
How does a tax on labor income influence the equilibrium quantity of employment? A tax on labor income ______. The equilibrium quantity of labor ______.
decreases the supply of labor; decreases At the new equilibrium quantity of labor, the before-tax wage rate rises and the after-tax wage rate falls .
The present value of $200 two years from now when the interest rate is 7 percent is
$175
During a year, a firm's net investment is $6400 and depreciation is $1600. What is the firm's gross investment?
$8000 gross Investment = net investment + depreciation
Using the Rule of 70, if the country of Huttodom's current growth rate of real GDP per person was 10 percent a year, how long would it take the country's real GDP per person to double?
7 years
Nominal GDP is
GDP valued at prices of that year
Employment to population ratio
It is calculated by dividing the number of people employed by the total number of people of working age, and is used as a metric of labor and unemployment. OR (Labor force - Unemployment)/(Labor Force+Not in Labor Force)
The two main official measures of money in the United States today are ______. The two main official measures of money in the United States ______ really money.
M1 and M2; are
allocative efficiency
MC=MB
The Law of Supply
The law of supply states that other things remaninging the same, the higher the price of a good, the greater is the quantity supplied.
As a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market?
There was a leftward shift in the supply of loanable funds curve
Because of the biases in calculating the CPI, actual inflation is
less than the measured inflation rate.
Facebook sold shares of stock for the first time in an IPO on May 18, 2012. The stock originally sold for $38 per share. As of October 19, 2012, a share of Facebook stock was valued at $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called
a capital loss
Which of the following always raises the equilibrium price?
an increase in demand combined with a decrease in supply
Discouraged workers ________ counted as officially unemployed because they ________.
are not; are not actively seeking work
If the price of a good changes but everything else influencing suppliers' planned sales remains constant, there is a
movement along the supply curve.
The equilibrium price will fall and the equilibrium quantity might increase, decrease, or stay the same when the
demand for a good decreases and the supply of it increases.
A Keynesian economist believes that
if the economy was left alone, it would rarely operate at full employment.
Normal goods are those for which demand decreases as
income decreases.
An increase in the interest rate in the United States compared to the interest rate in Great Britain will
increase the U.S. interest rate differential AND shift the demand curve for dollars rightward.
