Macro Final Exam

Compared with stocks, bonds tend to reward investors with a higher average return on investment over the long run. a) True b) False

False

Identify which are goals of monetary policy, and which are not.

Goals of Monetary Policy: Price Stability Maximum employment Financial market stability Economic growth Not Goals: High inflation Improving bank's profits Increasing the size of the financial sector

A rise in real GDP is associated with increased employment. a) True b) False

True

Compensation of employees in the income approach to calculating GDP includes many benefits, such as employers' contributions to unemployment compensation. False True

True

If foreign countries abandoned the use of the dollar as their only form of legal currency, the U.S. money multiplier would likely increase. a) True b) False

True

Knowing the marginal propensity to consume makes it possible to calculate the marginal propensity to save. a) True b) False

True

Money leakages make it more difficult to use monetary policy to pull the economy out of a recession. a) True b) False

True

If the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be? a) $60 million b) $11 million c) $275 million d) $50 million

a) $60 million

In the TED talk that we watched today in the class, what was the name of the Nobel prize winner economist? a) Esther Duflo b) David Card c) John Keynes d) Abhijeet Banerjee

a) Esther Duflo

If an employer uses an escalator clause to determine an employee's raise each year, in an inflationary environment, the employer is more likely than the employee to want to use the personal consumption expenditures price index in this clause. a) True b) False

a) True

An economy is expected to produce higher profits for business owners at the same time that the country's stock market surges. What changes can be expected in the country's market for loanable funds? a) an increase in demand and a decrease in supply b) increases in both demand and supply d) decreases in both demand and supply d) a decrease in demand and an increase in supply

a) an increase in demand and a decrease in supply

The demand for loanable funds is downward sloping because a) as interest rates fall, businesses find more projects to be profitable and thus want to borrow more. a) as interest rates fall, the value of the money supply drops. c) higher interest rates are equivalent to higher returns on business projects. d) higher interest rates encourage firms to borrow more.

a) as interest rates fall, businesses find more projects to be profitable and thus want to borrow more.

Net exports equal a) exports minus imports. b) exports plus imports. c) all of the goods and services produced minus exports. d) all of the goods and services produced plus imports.

a) exports minus imports.

A bond's price and yield a) move in opposite directions. b) are usually equal in value. c) must sum up to 1,000. d) move in the same direction.

a) move in opposite directions.

Government expenditures include _____ and _____ but NOT _____. a) wages and salaries; the purchase of products and services; transfers b) government expenditures include wages and salaries, transfers, and the purchase of products and services c) transfers; the purchase of products and services; wages and salaries d) wages and salaries; transfers; the purchase of products and services

a) wages and salaries; the purchase of products and services; transfers

Which of these is NOT a reason the aggregate demand curve is negatively sloped? a) interest rate effect b) wealth effect c) income effect d) export effect

c) income effect

The consumer Price Index Measures Private Goods as well as Public goods a) True b) False

false

If Kelly transfers $500 from her savings account to her checking account, M1 will _______ and M2 will ________.

increase; remain the same.

The national income and product accounts have been used to track the United States' economic performance since the Civil War. a) True b) False

False

Personal consumption expenditures are goods and services purchased by residents of the United States. a) True b) False

True

The national income and product accounts are released quarterly to ensure that accurate economic information is readily available. a) True b) False

True

Thomas Malthus believed that the geometric growth of the population and the arithmetic growth of the food supply would never be altered. a) True b) False

True

To convert a nominal value to a real value in dollar terms, the base year index must be set at 100. a) True b) False

True

Order the following saving mechanism in descending order of liquidity.

Cash in your pocket checking account savings account corporate bond a house

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 remains in the checking accounts of the loan recipients. The bank has $50,000 cash on hand, and the reserve requirement is 25%. The reserve ratio for this bank is _____, and it _____ meeting its reserve requirement. a) 53.76%; is b) 0.002%; is not c) 20%; is d) 186%; is not

a) 53.76%; is

If the economy starts below full employment, an expansionary fiscal policy will shift the aggregate demand curve from _____ to _____, and equilibrium will move from point _____ to _____. a) AD0; AD1; a; b b) AD1; AD0; a; b c) AD0; AD1; b; a d) AD1; AD0; b; a

a) AD0; AD1; a; b

What is a difference between the typical structure of a retirement savings account (401(k)) and an individual retirement arrangement (IRA)? a) Employers often match 401(k) contributions, but they do not match IRA contributions. b) IRAs typically earn interest, but 401(k) accounts typically earn dividends. c) Taxes are due on withdrawals from an IRA but not on withdrawals from a 401(k) account. d) IRA contributions are typically made with pretax income while 401(k) contributions are made with post tax income.

a) Employers often match 401(k) contributions, but they do not match IRA contributions.

Esteban's annual salary is $80,000, of which he saved $20,000. When he received his bonus of $10,000, he spent $8,000 on home renovations and saved the remaining $2,000. Which statement is TRUE? a) Esteban's average propensity to consume increased. b) Esteban's average propensity to consume stayed the same. c) Esteban's average propensity to consume decreased. d) Esteban's average propensity to consume cannot be calculated.

a) Esteban's average propensity to consume increased.

_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy. a) Increasing; increasing; lowering b) Increasing; reducing; raising c) Reducing; increasing; raising d) Reducing; increasing; lowering

a) Increasing; increasing; lowering

Which statement regarding discretionary and mandatory spending is correct? a) Mandatory spending may act as an automatic stabilizing force in the macro economy. b) Discretionary spending is authorized by permanent laws. c) Mandatory spending programs include national defense, income security, and education. d) Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s.

a) Mandatory spending may act as an automatic stabilizing force in the macro economy.

The _____ is a weighted average of 85 indicators of aggregate economic performance, designed to pinpoint signs of a recession in a reasonable time frame. a) National Activity Index b) producer price index c) Dow Jones Industrial Index d) consumer price index

a) National Activity Index

Which situation indicates that total output in a country has grown the most when the starting output is the same in all situations? a) Output per worker grows by 10% while the labor force grows by 10%. b) Output per worker remains constant while the labor force grows by 11%. c) Output per worker grows by 4% while the labor force grows by 12%. d) Output per worker grows by 11% while the labor force remains constant.

a) Output per worker grows by 10% while the labor force grows by 10%.

Which of these is NOT a criticism of the dating of business cycles by the National Bureau of Economic Research (NBER)? a) The NBER is sometimes manipulated by the federal government. b) NBER dates peaks and troughs only after they occur. c) Economists use different methodologies to measure business cycles. d) The NBER deliberations are not public.

a) The NBER is sometimes manipulated by the federal government.

If the economy shown in the figure begins on AD1 and SRAS1, what will happen in the short run and long run if the government begins a sustained period of increased spending? a) The economy moves from point C to E to B. b) The economy moves from point C to A to B. c) The economy moves from point D to C to E. d) The economy moves from point D to C to A.

a) The economy moves from point C to E to B.

Which of these will NOT be included in the GDP? a) a cruise on a ship registered in Norway b) the value of a meal eaten at Wendy's in New York City but consumed by a tourist from Norway c) college tuition d) the value of Kansas corn

a) a cruise on a ship registered in Norway

Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the _____ effect. a) crowding-out b) boomerang c) ricochet d) opposite expansionary

a) crowding-out

A passive job search a) entails merely talking to friends about jobs. b) includes contacting a private employment agency. c) means participating in productive activities, like sending out résumés. d) entails the scheduling of job interviews.

a) entails merely talking to friends about jobs.

Assume taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to a) fall by $600. b) by $800. c) rise by $800. d) remain the same.

a) fall by $600.

A production function says output per worker equals A × f(L/L, K/L, H/L, N/L) and tells us all of these EXCEPT _____ will lead to a better standard of living. a) more people b) increases in capital c) more natural resources d) more human capital

a) more people

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. a) recessionary; increase; $100 b) inflationary; decrease; $100 c) recessionary; increase; $250 d) inflationary; decrease; $250

a) recessionary; increase; $100

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. a) recessionary; increase; $100 b) inflationary; decrease; $250 c) inflationary; decrease; $100 d) recessionary; increase; $250

a) recessionary; increase; $100

The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. The movement from point a to point b is due to a) workers and suppliers adjusting their expectations to higher price levels. b) workers and suppliers adjusting their expectations to lower price levels. c) decreased consumer spending brought about by increased government spending and/or lower taxes. d) increased consumer spending brought about by increased government spending and/or lower taxes.

a) workers and suppliers adjusting their expectations to higher price levels.

Suppose the town of Treeville has a population of 200, of which 120 are in the labor force. Of those in the labor force, 100 are employed and 20 are unemployed. The unemployment rate in Treeville is a) 10%. b) 17%. c) 60%. d) 20%.

b) 17%.

A bond has a face value of $1,000 and an annual interest payment of $44. What is its coupon rate, and what is its yield if it is sold for $1,100 in the secondary market? a) 44% and 4.4%, respectively b) 4.4% and 4.0%, respectively c) 4.0% and 4.4%, respectively d) 4.4% and 10%, respectively

b) 4.4% and 4.0%, respectively

If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____. a) 250; greater than 250 b) 4; equal to or less than 4 c) 25; greater than 25 d) 25; less than 25

b) 4; equal to or less than 4

If a one-year bond with a face value of $1,000 is sold for $950, what is the bond's approximate yield? a) 95% b) 5.26% c) 9.5% d) 1.05%

b) 5.26%

Last year, the consumer price index was 115 while the consumer price index for this year is 125. The rate of inflation is a) 9.2%. b) 8.7%. c) 8%. d) 10.8%.

b) 8.7%.

Which statement is NOT correct? a) Discouraged workers are considered part of the leisure class and not part of the labor force. b) Discouraged workers are considered underemployed. c) Discouraged workers have stopped actively seeking work. d) Discouraged workers are not classified as unemployed.

b) Discouraged workers are considered underemployed.

Which assumption is NOT a problem related to using the consumer price index (CPI) to accurately state the rate of inflation? a) The CPI assumes that people do not substitute goods. b) The CPI does not deal with producer prices. c) The CPI does not include new products. d) The CPI does not account for quality changes.

b) The CPI does not deal with producer prices.

In which situation is a country LEAST likely to be producing on its production possibilities curve? a) The average education level is of the fourth grade. b) There are legal disputes over the ownership of 15% of the factory buildings in the country. c) The land is dry and has low productivity in farming. d) There are large legal penalties for breaking a contract.

b) There are legal disputes over the ownership of 15% of the factory buildings in the country.

Which of these is NOT a financial intermediary in the market for loanable funds? a) an insurance company b) a school c) mutual funds d) credit unions

b) a school

Which list represents monetary policy actions that are consistent with one another? a) sell government bonds, raise reserve requirements, lower the discount rate b) buy government bonds, lower reserve requirements, lower the discount rate c) sell government bonds, lower reserve requirements, raise the discount rate d) buy government bonds, raise reserve requirements, raise the discount rate

b) buy government bonds, lower reserve requirements, lower the discount rate

What are the determinants of short-run aggregate supply? a) changes in government spending, taxes, and business and inflationary expectations b) changes in input prices, taxes, and business and inflationary expectations c) changes in education, taxes, and business and inflationary expectations d) changes in input prices, taxes, and technology

b) changes in input prices, taxes, and business and inflationary expectations

Which event will shift the aggregate demand curve to the right? a) decrease in military spending b) decrease in taxes c) increase in household debt d) catastrophic hurricane hits the northeastern United States

b) decrease in taxes

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing a) deflation. b) disinflation. c) hyperinflation. d) a drop in its price level.

b) disinflation.

Assume the economy is currently experiencing aggregate expenditures greater than aggregate income. The economy will move toward equilibrium as businesses begin to produce _____, leading to _____ employment and _____ income. a) more; less; less b) more; more; more c) less; less; less d) less; more; more

b) more; more; more

Bond prices and their yields are _____ because the bond's face value and _____are fixed, forcing its _____ to change in response to changing market conditions. a) negatively related; sales price; coupon payment b) negatively related; coupon payment; sales price c) positively related; coupon payment; sales price d) positively related; sales price; coupon payment

b) negatively related; coupon payment; sales price

Which item is NOT a category of personal consumption expenditures? a) services b) residential housing c) durable goods d) nondurable goods

b) residential housing

A breakthrough in solar energy research that halves the cost of electricity will a) have no effect on the aggregate supply curve. b) shift the aggregate supply curve to the right. c) shift the aggregate supply curve to the left. d) cause the aggregate supply curve to become vertical.

b) shift the aggregate supply curve to the right.

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. Its current level of total reserves is _____. If the reserve requirement is increased to 25%, the new level of excess reserves would be _____. a) $15,000; $4,000 b) $30,000; $5,000 c) $12,000; $2,000 d) $25,000; $3,000

c) $12,000; $2,000

Based on the information provided in the graph, at an income level of $300, savings equals _____, the MPC equals _____, and the APC equals _____. a) $80; 0.6; -0.27 b) $300; 0.4; 0.5 c) -$80; 0.6; 1.27 d) -$120; 0.4; -0.7

c) -$80; 0.6; 1.27

Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals a) 0.4. b) 0.5. c) 0.2. d) 0.6.

c) 0.2.

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium? a) Short-run aggregate supply falls causing unemployment; with less output, investment falls, leading to a reduction in long-run aggregate supply and a new long-run equilibrium with lower output and higher prices. b) Aggregate demand falls causing prices to fall; at lower prices, aggregate demand then rises back to its original level, leading to a return to the original price and output levels. c) Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output. d) Short-run aggregate supply falls; then aggregate demand falls, leading to a new long-run equilibrium with lower prices and lower output.

c) Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output.

Which statement(s) is/are TRUE regarding the paradox of thrift?I. People intend to save less but their actions actually lead to an increase in savings.II. For the paradox of thrift to occur, investment must be positively related to income.III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings. a) II and III only b) I, II, and III c) II only d) I and II only

c) II only

According to the table, which country will have the lowest real GDP per capita in 23.67 years? a) Macia b) Coland c) Nomia d) Ecoland

c) Nomia

Which statement is an example of an open market operation? a) A bank loans out all but 5% of its funds to hold in storage. b) Naftali runs a bazaar in Baghdad selling odds and ends type trinkets to tourists. c) The central bank sells bonds to the public via the commercial banking system. d) The central bank lowers the interest rate from 5% to 3% on the loans it gives to commercial banks.

c) The central bank sells bonds to the public via the commercial banking system.

If the economy shown in the figure begins on AD1 and SRAS1, what will happen in the short run and long run if the price of oil rises significantly? a) The economy will move from point D to C to E. b) The economy will move from point D to C to B. c) The economy will move from point C to A to B. d) The economy will move from point C to E to B.

c) The economy will move from point C to A to B.

If your goal was to have the largest amount of money in your bank account as possible in two years, which option would you choose? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years.) a) a beginning deposit of $1,010, earning 3% per year b) a beginning deposit of $1,000, earning 4% per year c) a beginning deposit of $930, earning 8% per year d) a beginning deposit of $950, earning 5% per year

c) a beginning deposit of $930, earning 8% per year

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier. a) aggregate spending; larger b) aggregate spending; smaller c) disposable income; smaller d) disposable income; larger

c) disposable income; smaller

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. a) recessionary; increase; $100 b) inflationary; decrease; $250 c) inflationary; decrease; $100 d) recessionary; increase; $250

c) inflationary; decrease; $100

Bonds are considered to be _____ than stocks because _____. a) riskier; stockholders are less affected by a firm's bankruptcy b) less risky; bondholders earn dividends and stockholders do not c) less risky; bondholders are less affected by a firm's bankruptcy d) riskier; stockholders earn dividends and bondholders do not

c) less risky; bondholders are less affected by a firm's bankruptcy

One argument against using taxation to pay off the public debt is that it will redistribute wealth from a) richer bondholders to poorer people who do not own bonds. b) richer bondholders to richer people who do not own bonds. c) poorer people who do not own bonds to richer bondholders. d) poorer bondholders to richer people who do not own bonds.

c) poorer people who do not own bonds to richer bondholders.

In the figure, equilibrium savings equals _____ when investment is at AE = C + I0, and _____ when investment is at AE = C + I1. a) -$50; -$200 b) $0; $0 c) $50; $150 d) $100; $200

d) $100; $200

When a perpetual bond with a face value of $1,000 is issued, general interest rates are 3%, so the annual interest payment is _____. After the bond is issued, market interest rates rise to 4%, which forces the price of the bond to _____ to _____. a) $3; rise; $750 b) $30; rise; $750 c) $3; fall; $75 d) $30; fall; $750

d) $30; fall; $750

If an economy is growing at 10%, how long will it take for $1,000 to turn into $4,000? a) 21 years b) 7 years c) 28 years d) 14 years

d) 14 years

According to the table, what is the labor force of this economy? a) 300 b) 500 c) 50 d) 350

d) 350

_____ unemployment is the result of changes in the business cycle. a) Structural b) Frictional c) Seasonal d) Cyclical

d) Cyclical

Which change is likely to increase wages the MOST in a country? a) Drainage of swampy land allows 2% more land to be farmed. b) The labor force grows by 2%. c) Since the growth rate is 2% in all listed situations, wages would increase equally in all of them. d) The capital-to-labor ratio rises by 2%.

d) The capital-to-labor ratio rises by 2%.

The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. Which statement is TRUE? a) The movement from point e to point a is due to workers and suppliers adjusting their expectations to lower price levels. b) The movement from point a to point b is due to increased consumer spending brought about by increased government spending and/or lower taxes. c) The movement from point e to point a is due to decreased consumer spending brought about by increased government spending and/or lower taxes. d) The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

d) The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

Which of these provides an accurate description regarding the slope of the short-run aggregate supply curve? a) The positive slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. b) The negative slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. c) The negative slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. d) The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

d) The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

Which event would NOT be included in total factor productivity measurements? a) an earthquake that disrupts a country's production for several weeks b) a severe military conflict that restricts daily movements of labor and capital c) an unexpected breakthrough in GPS technology that enhances transportation d) a large investment in physical capital that makes labor more productive

d) a large investment in physical capital that makes labor more productive

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction, the supply of money is a) directly reduced by $4 million and has the potential to be reduced by another $12 million. b) directly increased by $4 million and has the potential to be increased by another $8 million. c) not directly affected but has the potential to be increased by a total of $12 million. d) directly increased by $4 million and has the potential to be increased by another $12 million.

d) directly increased by $4 million and has the potential to be increased by another $12 million.

Under which condition would the Fed be most likely to engage in its role as the lender of last resort? a) when throngs of borrowers apply for loans as the housing market picks up b) when a stock market crash causes people to sell their stocks and purchase bank CDs instead c) when record amounts of student loans are paid back before interest rates rise d) if a lack of confidence in the financial system causes savers to withdraw money from banks

d) if a lack of confidence in the financial system causes savers to withdraw money from banks

Unanticipated _____ is detrimental to economic growth. a) deflation b) inflation c) Neither inflation nor deflation is detrimental to economic growth. d) inflation or deflation

d) inflation or deflation

In September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the _____ lag. a) recognition b) implementation c) decision d) information

d) information

Cost-push inflation occurs because of a shift to the a) right of the short-run aggregate supply curve. b) left of the aggregate demand curve. c) right of the aggregate demand curve. d) left of the short-run aggregate supply curve.

d) left of the short-run aggregate supply curve.

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment? a) increase spending by $25 billion b) increase spending by $10 billion c) reduce spending by $100 billion d) reduce spending by $25 billion

d) reduce spending by $25 billion

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded. a) left; increase b) left; decrease c) right; decrease d) right; increase

d) right; increase