MACRO FINAL (ECON2453)

The broadest-based price index available is the

GDP deflator

The equation for GDP using the expenditure approach is

GDP=C+I+G+EX-IM

Per capita gross national income (GNI) decreases when

GNI does not change and the population increases

Currency held outside banks + demand deposits + travelers checks + other checkable deposits

M1

The principal that irrelevant detail should not be included in a model is known as

Ockham's razor

The ____________ of 1993 sought to reduce the federal deficit by $504.8 billion by 1998

Omnibus Budget Reconciliation Act

The _________ ____________ can change the quantity of money in the economy

Treasury Department

Saving equals

Y-C

When the government sector is included in the income-expenditure model, the equation for aggregate income is

Y=C+I+G

John's optimal money balance has increased. This could have been caused by

a decrease in the interest rate

An intended goal of contractionary fiscal and monetary policy is

a decrease in the level of aggregate output

Which of the following is an example of an easy monetary policy?

a decrease in the level of aggregate output

An example of expansionary monetary policy is

a decrease in the required reserve ratio

The price system

-automatically distributes scarce goods -there is a deadweight loss

The federal reserve system consists of ____ Federal Reserve Banks.

12

What definition of unemployment would you expect classical economists to use?

Anyone who is willing to work at the current market wage, but has not yet been able to find employment

In an economy, when the price level falls, consumers and firms buy more goods and services. This relationship is represented by the

aggregate demand curve

Employment tends to rise when

aggregate output rises

The functioning of the labor market primarily affects the shape of the

aggregate supply curve

The quantity of output supplied at different price levels is represented by the

aggregate supply curve

Gross National Product is the total market value of

all final goods and services produced by resources owned by a country, regardless of who owns the resources

The production possibility frontier is a graph that shows

all the combinations of goods and services that can be produced if all of society's resources are used efficiently

A loan made by a bank is considered ____ of that bank

an asset

The time it takes the Fed or Congress to change economic policy is

an implementation lag

Which of the following will most likely cause a decrease in the quantity of money demanded?

an increase in the interest rate

An example of tight monetary policy is

an increase in the reserve equipment

If output is less than planned aggregate expenditure, there will be

an unplanned decrease in inventories

Normative economics is an approach to economics that

analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred courses of action

Positive economics is an approach to economics that

applies statistical techniques and data to economic problems

Inflation and Unemployment

are a focus of macroeconomics

The "law of demand" implies that

as prices rise, quantity demanded increases

net worth is

assests - liabilities

The total of consumer plus producer surplus is greatest

at the market equilibrium

A movement down the aggregate supply curve is caused by a(n)

decrease in the price level

If there is a surplus in the money market, the Fed can eliminate it by

decreasing money supply

a commercial bank lists

deposits as liabilities

In a period of high unemployment, the Fed would most likely

ease monetary policy

4 criteria frequently used in judging the outcome of economic policy

efficiency, equity, stability, economic growth

when the interest rates rise, bond values

fall

A boom in the stock market affects the economy because

firms invest more as demand grows

in an output market

firms purchase resources

Fixed weight indexes

generally become less accurate the farther in time they are from the base year

Net investment equals

gross investment minus depreciation

In input or factor markets

households supply resources

What is held constant along the demand curve?

income

In a free market system, the amount of output that any one household gets depends on

income & wealth

If planned injections exceed leakages, output will

increase

Inflation is a(n)

increase in the overall price level

The Federal Reserve's policy to "lean against the wind" means that

interest rates are increased gradually as the economy expands

Personal income

is always equal to national income

When a government runs a deficit

its debt increases

According to the text, in reaction to the stock market boom of 1995 to 2000, the FED

kept interest rates higher than they would have anyway

Changes in the ____ market affect the shape of the short run aggregate supply curve

labor

Your M1 money demand is the amount of money you wish to

leave outside any interest-bearing account

During periods of stagflation, a decrease in the money supply will

lower inflation and the level of output

The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units is

microeconomics

The interest rate is determined in the

money market and influences the level of planned investment and thus the goods market

If the demand for coffee decreases as income decreases, coffee is a(n)

normal good

the money market and the goods market are linked through the impact of the interest rate on

planned investment

The critics of stabilization policy such as Milton Friedman argue that monetary policy is comparable to "the Fool in the Shower." This means that

policy initiatives are often destabilizing because of time lags

To isolate the impact of one single factor, economists invoke the assumption of

post hoc, ergo prompter hoc

The level of aggregate output that can be sustained in the long run without inflation is known as

potential output

The basic coordinating mechanism in a free market system is

price

An efficient economy is an economy that

produces what consumers demand and does so at the least possible cost

Equilibrium is when

quantity demanded equals quantity supplied

The legislative intent of the Gramm-Rudman-Hollings Act was to

reduce the federal deficit by a set amount each year

The aggregate supply curve

relates output with the price level

A government's debt is reduced when it

runs a surplus

Business Cycle refers to

short-term ups and downs in the level of economic activity

Suppose the equilibrium wage rate in the labor market is $10 and the demand for labor increases. If wages are sticky, there will be a

shortage of labor and the wage rate stays the same

An individual who cannot find a job because his or her job skills have become obsolete is an example of

structural unemployment

If you hear a person saying "I lost my job because I was replaced by a machine," you should conclude that this person is __________ unemployed

structurally

The government implements fiscal policy when it changes

taxes and/or spending

The graph that shows the relationship between the aggregate quantity of output supplied by all the firms in an economy and the overall price level is

the aggregate supply curve

the MPC is

the change in consumption divided by the change in income

The MPS is

the change in saving divided by the change in income

In economics, investment always refers to

the creation of capital

Aggregate demand rises when the price level decreases because the lower price level causes

the demand for money to fall causing interest rates to fall

Consumer surplus is

the difference between the max a person is willing to pay and current market price

An increase in government spending will completely crowd out investment

the economy is operating at capacity

Output is determined in

the goods market and also influences money demand and the interest rate

Monetary policy affects the goods market through its effect on

the interest rate and planned investment

The fraction of a change in income that is consumed or spent is called

the marginal propensity to consume

The unemployment rate is

the number of unemployed divided by the population

If interest rates fall, then

the price of fixed-income securities rise

The tax multiplier is

the ratio of the change in the equilibrium level of output to the change in taxes

The base year of an index is

the year chosen for the weights in a fixed weight procedure

In a period of high inflation, the Fed would most likely

tighten monetary policy

According to the theory of comparative advantage, ____ raise(s) productivity by lowering opportunity costs

trade & specialization

What is the largest expenditure source in the government's budget?

transfer payment

Suppose the wage rate in the labor market is $15 and the demand for labor decreases. If wages are sticky,

unemployment increases

A factor market is

where resources are exchanged

Using the saving/investment approach to equilibrium, the equilibrium condition can be written as

C+I=C+S

Redistribution of income from the rich to the poor is achieved by a tax system that requires taxes to rise with income. Which of the following criteria best explains the goal of this tax system?

Equity

A firm issues bonds to

borrow money

Fiscal policy affects the goods market through

changes in taxes and government spending

The single largest expenditure component in GDP is

consumption

In a closed economy with no government, aggregate expenditure is

consumption plus investment

When economists refer to "tight" monetary policy, they mean the Federal Reserve is taking actions that will

contract the money supply

One way to control rising food prices and global inflation concerns is with

contractionary monetary supply