macro final

consumption is $1.2 trillion, investment is $0.9 trillion, government expenditure is $0.75 trillion, exports are $0.45 trillion, and imports are $0.42 trillion. aggregate expenditure is

$2.88 trillion AE = C + I + G + NX = 1.2 +0.9 +0.75 + 0.03 = 2.88

the standard deduction for a single person is $12,200. based on this table, if your total income is $47,000, what is the amount of tax you will pay on your taxable income? for taxable ...but not ...the marginal income over... over... tax rate is: $0 $97,700 10% $9,700 $39,475 12% $39,475 $84,200 22% $84,200 $160,725 24% $160,725 $204,100 32% $204,100 $510,300 35% $510,300 -- 37%

$3,982 taxable income = $47,000 - $12,200 = $34,800 taxable income will be taxed as follows $9,700 @ 10% = $970 $25,100 @ 12% = $3,012 total taxes = 970 = 3012 = $3,982

payroll taxes are 6.2%, and Medicare taxes are 2.9%. if your employer owes you $850, how much will you get after these deductions?

$772.65 deductions = payroll taxes + medicare taxes =6.2 + 2.9 = 9.10 amount of deductions = $850 * 9.10/100 = $77.35 amount AFTER deductions = $850 - $77.35 = $772.65

the lower the prices in an economy, the: (i) lower the purchasing power of the currency (ii) lower the real wealth in the economy (iii) higher the real wealth in an economy (iv) cheaper the country's exports

(iii) and (iv)

refer to the following table. what was the approximate output gap in 1999? year real GDP potential GDP (trillions of $) (trillions of $) 1995 3.20 3.30 1996 3.45 3.65 1997 3.75 3.89 1998 4.05 4.10 1999 4.38 4.30

1.9% output gap = (4.38 - 4.30 / 4.30) * 100 = 0.08 / 4.30 * 100 = 1.9%

what is the value of the multiplier if the marginal propensity to consume is 0.75?

4 multiplier = 1 / 1 - MPC =1 / 1 - 0/75 = 1/ 0.25 = 4

if an economy has a negative output gap of 2%, this means

GDP is 2% below potential GDP

suppose the marginal propensity to consume (MPC) is 0.5. the federal government increases spending by $200 billion. what is the change in GDP, holding everything else constant?

a $400 billion increase in GDP now multiplier = GDP / G = 1 / 1 - MPC = GDP / 200 = 1 / 1 - 0.05 = GDP = 200 / 0.5 = 400

which of the following is a reason to worry about government debt?

a debt crisis becomes more likely

Real GDP is calculated by

adding all the spending in the economy

monetary policy is defined as the

adjustment of interest rates to influence economic conditions

macroeconomic equilibrium occurs where

aggregate demand intersects with aggregate supply

if an economy has an output gap of 0%, this means the economy is

at its highest sustainable rate of production

aggregate expenditure is the sum of

consumption, planned investment, government expenditure, and net exports AE = C + I + G + NX

in order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes

expansionary ; raises ; lowers

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 were initiatives enacted by the government and respectively signed by President George W. Bush and President Barack Obama. The first of the initiatives focused on taxes while the second focused on government spending. Both were intended to improve the economy (that is, increasing aggregate demand) during the Great Recession. As such, these initiatives best represent examples of _____

expansionary fiscal policies

suppose that an economy is in a recession. you would expect to see real GDP:

fall below potential GDP

suppose that an economy is overheating. you would expect to see the unemployment rate

fall below the equilibrium unemployment rate

a budget surplus occurs when

government revenue exceeds government spending

_____ income taxes and payroll taxes _____ after-tax incomes, which _____ consumption and therefore lower aggregate expenditure

higher ; lower ; decrease

expansion monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand

increases ; boosts ; raises

if unemployment is above its sustainable level, then the economy is

operating below capacity, and inflation will likely fall

contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand

raises ; lowers ; decreases ; lowers

if inflation is 2% and a firm does not give its workers a nominal raise, then

real wages have fallen by 2% note: real = normal - inflation

based on Okun's rule of thumb, if you forecast that the output gap will decline from -2% to -4%, the unemployment rate will

rise by 1% Okons rule of thumb states: for every percentage point that actual output falls below potential output, the unemployment rate increases around half a percentage point

the business cycle refers to the

short-term fluctuations in economic activity

if government is using fiscal policy, this means that it is using _____ and _____ to attempt to stabilize the economy

spending ; tax policies

who runs the Federal Reserve of the United States?

the chair of the Federal Reserve

suppose a high-income person, a middle-income person, and a low-income person purchase identical houses that are financed by similar mortgages. who gets the lowest tax benefit?

the low-income person tax benefit is based on a person's income as opposed to the mortgage

the aggregate supply curve shows the relationship between the price level and the

total quantity of output that suppliers collectively produce

which of the following indicators will probably rise when the economy is in a recession?

unemployment

the standard deduction for a single person is $12,200. based on this table, if your total income is $131,000, what is the amount of tax you will pay on your taxable income? for taxable ...but not ...the marginal income over... over... tax rate is: $0 $97,700 10% $9,700 $39,475 12% $39,475 $84,200 22% $84,200 $160,725 24% $160,725 $204,100 32% $204,100 $510,300 35% $510,300 -- 37%

$22,687 taxable income = $131,000 - $12,200 = $118,800 the taxable income will be taxed as follows $9,700 @ 10% = $970 $29,775 @ 12% = $3,573 $44,725 @ 22% = $9,839.50 $34,600 @ 24% = $8,304.00 total taxes = $970 + $3,573 + $9,839.50 + $8,304.00 = $22,686.50

the standard deduction is $12,200 for a single person. suppose you file as a single person, and your current income is $35,000. this means that your taxable income is

$22,800 35,000 - 12,200 = 22,800

refer to the following table. in which year(s) was the economy below potential GDP? year real GDP potential GDP (trillions of $) (trillions of $) 1995 3.20 3.30 1996 3.45 3.65 1997 3.75 3.89 1998 4.05 4.10 1999 4.38 4.30

1995, 1996, 1997, and 1998

in a recessionary situation, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today

lower ; induce

if the output gap is negative, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment

lower ; up a negative output gap implies real GDP is below potential GDP

when inflation falls below its target rate, the Federal Reserve will

lower interest rates

Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply _____

lowers the interest rate, and firms increase investment spending

which of the following does the Federal Reserve control directly? (i) inflation (ii) unemployment (iii) output (iv) real GDP

none of the above

when government expenditure rises by $180 million and the initial increase in government expenditure was $60 million, then the multiplier is

3