Macro Final
The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially
"In ways that minimize the cost per unit of output."
Refer to the accompanying table. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are
$0.65 million.
Refer to the accompanying data (all figures in billions of dollars). The gross domestic product for this economy is
$110.
Refer to the accompanying data (all figures in billions of dollars). GDP is
$121.
Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit. Refer to the provided table, and suppose that the firm uses production technique D. If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the total profits of the firm from 70 units of Zenia?
$13
If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by:
$20 billion
Refer to the accompanying national income data. All figures are in billions of dollars. Consumption of fixed capital (private sector) is
$23.
Refer to the accompanying data (all figures in billions of dollars). GDP is
$417.
Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by
$6 billion.
Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Refer to the above data. If year 2 is the base year, then Real GDP in year 5 is:
$60
Refer to the accompanying national income data for the economy. All figures are in billions of dollars. The gross domestic product for this economy is
$623.
Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of
$80,000
If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by:
$9 billion
If the marginal propensity to consume is 0.9, then the marginal propensity to save must be
0.1.
Refer to the given data. The marginal propensity to consume is
0.80
A nation can produce two products: tanks and autos. The table below is the nation's production possibilities schedule. In moving from combination C to B, the opportunity cost of producing 100 more autos is
1 unit of tanks.
In an economy, the total expenditures for a market basket of goods in year 1 (the base year) was $5,000 billion. In year 2, the total expenditure for the same market basket of goods was $5,500 billion. What was the GDP price index for the economy in year 2?
110
The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?
16.7 percent
The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is
166.5 million.
Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s)
2 and 4.
Refer to the table. Between years 1 and 2, real GDP grew by __________ percent in Alta.
5
Over a ten-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 70, we can say that the average annual rate of inflation over this period was approximately:
7 percent
Which of the diagrams for the U.S. economy best portrays the effects of an increase in resource productivity?
A
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by
A and B.
Which of the following is a true statement?
A decline in aggregate demand will primarily affect real output and employment if prices are inflexible downward.
Which of the diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software?
A only
Refer to the above figures. Which of the following events would most likely result in inflation?
A shift from D2 to D3 in Figure A.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by
A.
Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?
D only
You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with closing the GDP-gap here?
Decrease government spending and increase taxes
In the expenditures approach of national income accounting, C, Ig, and G include expenditures for:
Domestically produced as well as imported goods and services
Refer to the tables. Suppose that Duckistan and Herbania are each producing 14 units of civilian goods and 2 units of military goods. Then
Duckistan is fully employing its resources, but Herbania is not.
Which of the following best describes the cause-effect chain of an expansionary monetary policy?
An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
Which of the diagrams for the U.S. economy best portrays the effects of a dramatic increase in energy prices?
B
A and B are substitute goods, but A and C are complementary goods. If the costs of producing A decreases, then the demand for:
B will decrease and the demand for C will increase
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by
C
Which of the diagrams illustrates the effect of a governmental subsidy on the market for AIDS research?
C only
Which of the diagrams for the U.S. economy best portrays the effects of a substantial reduction in government spending?
D
Which of the diagrams for the U.S. economy best portrays the effects of declines in the incomes of U.S. trading partners?
D
Which of the following would shift the saving schedule upward?
a decrease in wealth
If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be
a multiple of $1 million.
Refer to the diagram. Flow 4 represents
consumer expenditures and business revenue.
Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z?
crowding-out effect
The crowding-out effect suggests that
government borrowing to finance the public debt increases the real interest rate and reduces private investment.
The "invisible hand" concept refers to the
guiding function of prices in a market system.
If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement, the bank will
have $45 of additional excess reserves.
Refer to the diagram. Arrows (3) and (4) represent
incomes and consumer expenditures, respectively.
Refer to the diagram. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n)
increase in government regulation.
Other things equal, a restrictive monetary policy during a period of demand-pull inflation will
increase the interest rate, reduce investment, and reduce aggregate demand.
The crowding-out effect of expansionary fiscal policy suggests that
increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
A peak in the business cycle
is a temporary maximum point.
Refer to the diagram. Flow 2 represents
land, labor, capital, and entrepreneurial ability.
In annual percentage terms, investment spending in the United States is
more variable than real GDP.
If real GDP rises and the GDP price index has increased,
nominal GDP must have increased.
Refer to the diagram. If the equilibrium price level is P1, then
producers will supply output level Q1.
If products were in short or surplus supply in the Soviet Union,
producers would not react because no price or profit signals occurred. Correct
In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.
product; resource
Economists contend that most economic decisions are
purposeful.
Refer to the diagram. Arrows (1) and (2) represent
resources and goods, respectively.
Economic growth can best be portrayed as a
rightward shift of the production possibilities curve.
Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond falls by $200, the interest rate will
rise by 2.5 percentage points.
Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will
rise by about 15 percent.
Households and businesses are
sellers in the resource and product markets respectively
Refer to the tables. Opportunity costs of producing military goods are
smaller in Duckistan than Herbania.
The crowding-out effect is
strongest when the economy is at full employment.
Refer to the diagram. Suppose that aggregate demand increased from AD1 to AD2. For the price level to stay constant,
the aggregate supply curve would have to shift rightward.
The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes
the crowding-out effect.
Refer to the diagram. If equilibrium real output is Q2, then
the equilibrium price level is P2.
Which of the following will increase commercial bank reserves?
the purchase of government bonds in the open market by the Federal Reserve Banks
Refer to the diagram. Arrows (1) and (3) are associated with
the resource market.
Refer to the diagram of the market for money. The vertical money supply curve Sm reflects the fact that
the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.
Refer to the diagram. Flow 1 represents
wage, rent, interest, and profit income.
Which of the following statements is correct?
Interest rates and bond prices vary inversely.
Which of the following relations is not correct?
MPS = MPC + 1.
If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to:
Consume is .75
In the diagrams below, the subscript "1" refers to the initial position of the curve, while the subscript "2" refers to the final position after the curve shifts. Which diagram above illustrates the effects on the peanut butter market, if severe flooding destroys a large portion of the peanut crop in the economy?
D
Refer to the provided graph. Which point in the graph would allow a simultaneous increase in the production of both investment and consumer goods?
D
Which diagram above illustrates the effects on the peanut butter market, if severe flooding destroys a large portion of the peanut crop in the economy?
D
Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively. Which technique is economically most efficient in producing A?
IV
Monetary policy is expected to have its greatest impact on
Ig.
Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately:
Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million
If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that:
Saving is $90 billion Correct
Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina. Refer to the tables. Suppose that North Cantina is producing 2 units of capital goods and 17 units of consumer goods, while South Cantina is producing 2 units of capital goods and 21 units of consumer goods. We can conclude that
South Cantina is fully and efficiently using its resources, but North Cantina is not.
Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. One solution to this externality problem is to:
Tax producers by the amount DE per unit
Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. How will the firm respond to a positive demand shock if prices are inflexible?
The firm will increase production to 650 computers per week and charge a price of $1000
Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively. If the price of product A is $0.50, the firm will realize
an economic profit of $2.
Menu costs
are the costs to firms of changing prices and communicating them to customers.
If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government
budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements.
Consumer sovereignty" means that
buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers
The following factors tend to make the real GDP growth rate understate the growth of economic well-being, except
debasement of the environment.
A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1,000. If the price of this bond increases by $2,500, the interest rate in effect will
decrease by 2 percentage points.
With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will
decrease equilibrium price and increase equilibrium quantity.
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ___________ investment spending.
decrease; increase
If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced
deflation of 3.33 percent.
Fiscal policy refers to the
deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
The relationship between the size of the negative GDP gap and the unemployment rate is
direct.
Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2 and that the full-employment level of output is Y. If the government wants to move the level of real GDP back to Y and reduce demand-pull inflation, in the presence of a ratchet effect, it should
enact a contractionary fiscal policy that will shift aggregate demand to the left, but not as far as AD1.
For a given amount of nominal income, the real income will
fall if the price level rises.
Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1,250, the interest rate will
fall to 8 percent
Refer to the diagram. Arrows (1) and (2) represent
goods and resources, respectively.